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John Mauldin's Outside the Box

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  • Fourth Quarter Forecast 2008

    Really hear what I'm about to tell you. The center of gravity of the world economic system has moved from New York to Washington. Let me illustrate what I mean so you understand just how profound this is. Banks used to compete against banks. US carmakers competed against each other and the Japanese. And the New York financial markets told you how they're doing against each other. Understand what's happening now. The US Treasury has become the only "customer" that matters. The Treasury is now the customer—and investor -- with the $750+ billion checkbook. The Treasury is now the "investment banker" of last resort, arranging and financing mergers. Banks are competing against insurance companies for their slice of the bailout pie. Chrysler and GM (and the Michigan Congressional delegation) are looking to Washington, not Goldman or Merrill, to facilitate a merger. This is a seismic shift....
  • The International Economic Crisis and Stratfor's Methodology

    Exhale for a moment, forget your losses for the time being, and try to appreciate the fact that you're living through the single most important development in global finance since Bretton Woods. This is a "tell the grandkids about it" moment, when governments all around the world have essentially decided in unison that it's time to rewrite the rules, the very framework, in which financial transactions take place. Stock trading, interbank lending, commercial paper, the very concept of private sector ownership are all up in the air right now. The only thing I can tell you with certainty is that if you try to evaluate your investments using the same metrics you've always relied on - P/E ratios, market share, interest rates, etc. - you're going to be as successful as a football-turned-baseball coach evaluating a pitcher by the number of touchdowns he throws. The rules are changing, gentle reader, changing at least for awhile from market-driven inputs to government-driven inputs. If you try to apply what you know from the "old game" without understanding that you're playing a "new game," the rules might not make sense. I'm sending you today a piece from my friend George Friedman on how his company Stratfor looks at economics. More precisely, this piece explains how they look at Political Economy. And from here on out, it's political economy that's going to be driving markets. If the old rule was "Never fight the Fed." It's now, "Never fight the Fed. And the Treasury. And the ECB. And the Bank of England. And the Bank of Japan...." You get my point....
  • The New President and the Global Landscape

    In times of crisis, those with psychological fortitude discover opportunities that most people miss. A friend of mine in Houston tells me of unending piles of tree limbs broken down by the hurricane. The homeowner laments his disaster; the tree trimmer and the roofer order a new Mercedes. Most of the world sees a Wall St. meltdown. Buffett takes the opening to deploy billions from his cash hoard. They're all seeing the same thing, but they're reacting differently based on different visions of the future. I've included a piece today from my friend George Friedman over at Stratfor about the landscape the next US President will face. This article is a perfect example of why I rely on Stratfor for my geopolitical intelligence. The newspapers and other media do better or lesser jobs of telling me about what's happening right now. But that's not what an investor needs. What I need - and I recommend for you - is an analysis of what we're going to be facing. That's where George and his team absolutely excel. For at least the next month, the public conversation is going to be completely dominated by the November election and the political maneuvering to address the financial crisis. There will be tremendous drama. There will be dizzying swings back and forth in emotions, expectations, and more than likely the markets. And if you focus on it, you'll miss the real opportunities to position yourself for the emergence....
  • The Russian Resurgence and the New-Old Front

    It's been a hell of a few weeks, so let's start with a little much-needed levity. Two friends, a Trader and an Investor, walk up to the roulette wheel in a casino. They watch a guy hogging the table hit on his first spin. Then his second. Third, boom. Four in a row! The guy has an enormous stack of chips which he lets ride again on a fifth spin. 00. He's wiped out and skulks off to the bar. The two friends are excited because now it's their turn. The Trader says he's going to follow exactly the same pattern as the guy they just watched, BUT he's going to pocket his money after four spins. The Investor tells him to hold off for a minute. He wants to first buy stock in the casino.... Like most good jokes, there's a kernel of truth. When everything is in turmoil, you can't focus on the instances; you have to focus on the underlying foundations. Roulette isn't about guessing red or black; it's about understanding statistics. Today in a Special Outside the Box, we look at some potential problems from Russia that could impact the US and Latin America. It comes from George Friedman's company, Stratfor, the source I rely on for my geopolitical analysis. Peter Zeihan is one of the very sharpest thinkers in George's shop, as you'll see. The basic definition of public capital markets in the US and Europe is fundamentally different than in a country like Russia. If you don't understand the geopolitical lens through which a state views its capital markets, then you're making roulette bets instead of investments....
  • Solzhenitsyn and the Struggle for Russia's Soul

    As we search for "the" driver of financial markets, we look at all kinds of things. We pore over government statistics, company financial statements, and analyst research, trying to find that one nugget that will give us a glimpse of the future. Today, though, we're going to turn to literature. Because it's in Solzhenitsyn's vision of Mother Russia that we find an almost chillingly accurate roadmap of how Russia is likely to reemerge onto the global stage. When President Bush famously looked into Putin's eyes and saw his soul, what he saw - whether he knew it or not - was Solzhenitsyn's depiction of a true Russian leader. Read this obituary essay from my friend George Friedman over at Stratfor. George puts Solzhenitsyn in historical context, using his life and writings to illustrate not just the evolution of the Russian/Soviet/Russian system but also the Western perception of Russia and what it says about future relations. It's uncannily ironic that Solzhenitsyn died just days before Russia forcefully punctuated its geopolitical prominence in going to war with Georgia. You can almost imagine Solzhenitsyn shrugging and asking, "What did you expect?" Over the Labor Day weekend, Russian President Medvedev used a press interview to lay out five points that will define Russian foreign policy going forward. Allow me to translate (loosely) from the Russian: "We're back."...
  • The Real World Order

    Today I'm passing along a piece from George Friedman, Chief Intelligence Officer at Stratfor. He makes the absolutely compelling argument that issues of war and peace follow these same guidelines. There are ebbs and flows, but war between countries is an inevitable part of history, and it's driven by simple geography. The recent war between Russia and Georgia was precisely such a "reversion to the mean," double-entendre fully intended. Navigating financial markets requires an understanding of the geopolitical issues - the war & peace - that drive them. What does this war mean for Russian gas supplies to Europe? What does this war mean for the future of the BTC pipeline? Does this war make Iranian inclusion in global markets more or less likely? Is Russia just "vertically integrating" its control of energy flows with less-than-subtle tools?...
  • Mediterranean Flyover: Telegraphing an Israeli Punch?

    Kudos to my friend George Friedman and his crew at Stratfor. If you didn't see the article in this week's Barron's about Stratfor's analysis of the geopolitical risk premium built into oil prices, you missed a really good piece of work. You've probably heard Napoleon's quote that 'Amateurs discuss strategy, and professionals discuss logistics.' If you want a perfect example of how that quote plays out for the markets, take a look at Stratfor's article below. It's precisely the kind of sober, fundamental research that makes Stratfor my invaluable source for geopolitical intelligence. No matter where you're looking at putting your money today, the impact of energy prices simply can't be overstated. The commodities trade, US and foreign equities, debt and interest rates, everything is being driven by energy prices right now. Whether you're trying to factor energy as a direct input into the price and consumption of manufactured goods or dealing with monetary policy's impact on the dollar and debt markets, you're implicitly making an energy trade....
  • The Geopolitics of Iran

    For nearly 30 years, long before it was a charter member of the "Axis of Evil," Iran and the US have been locked in a hate-hate relationship. Walk down the street any Friday afternoon, and you're as likely to hear "Death to America!" as "Hi Ali, how are you?" Three decades of animosity, an externally opaque society, and no trade relations between the two countries mean that many of us have just the barest understanding of what's really going on over there. But whether it's a negotiated settlement with the US over Iraq, or a war-risk premium for crude oil, to threats and counterthreats with Israel and the US, Iran's decisions have enormous impact on the global economic system. All of the sudden, the picture of the "mad mullahs" you get from the papers seems expensively inadequate....
  • Quarterly Forecast: Third Quarter 2008

    As we begin the new quarter, now is an excellent time to take stock of your basic investment thesis. Ask yourself if your allocations still reflect what you think the world is going to look like over the next several months. And as part of that process, I'm here to tell you that making "financial" decisions based solely on "financial" inputs grossly oversimplifies the way the world really works. As I've said before, investing in debt, equity, or commodity markets without geopolitical intelligence is like trading juice futures without getting a weather forecast. You can do it, but good luck to you. I get my geopolitical intelligence from Stratfor. My friend George Friedman and his team have just published their 3rd Quarter Forecast. I got George to give me a copy I can share with you in this Special Edition of Outside the Box. As a Stratfor Member, you can get the 3Q Forecast - as well as their other forecasts and daily analyses - at a preferential rate available to my readers by clicking here. I strongly encourage you to add this valuable weapon to your investing arsenal....
  • Intelligence Guidance

    This week I want to share with you one of the more important tools in my arsenal for keeping up with what is going on in the world. As I've told you before, George Friedman and his team at Stratfor are my go-to guys for geopolitical intelligence. Their insights into this facet of the world are simply without peer. Now I want you to see their Intelligence Guidance which they publish each Friday for the upcoming week; last week's edition is below....
  • The Geopolitics Of China

    No matter where in the world I am, in South Africa, in Europe, in La Jolla, there's one question I get asked over and over, "What about China?" And small wonder. The increasing impact of China in the last generation is just staggering and seemingly accelerating every day. If you're in the market for oil, minerals, arable land, equities or debt, you're bidding against Chinese government-sponsored entities with a $1 trillion warchest. And the list of markets where China is a key player grows every day. Bottom line: whether you're filling up your gas tank or trading credit default swaps, China's decisions impact your pocket book....
  • The Geopolitics of $130 Oil

    The greyhairs among us remember the Arab Oil Embargo in 1973 and that economists of the time called it an "exogenous" shock to the system. For the first time, geopolitical events had a huge impact on world energy markets. All the financial models...
  • The Geopolitics Of Israel

    This week we step outside the box of conventional geopolitical analysis to hear the thinking of George Friedman, founder and chief executive officer of Strategic Forecasting, Inc. (Stratfor), on the geopolitics of Israel. George makes the key point that...
  • A Mystery in the Middle East

    This is a Special Edition of Outside the Box from my friend George Friedman and Stratfor. You've heard me say before that these guys see the world in a different way, but this piece just makes it crystal clear. There are serious rumblings about a...
  • Al Qaeda, Afghanistan and the Good War

    I hope you enjoy this special edition of Outside the Box from my friend George Friedman and his team at Stratfor. He talks about the "good war" in Afghanistan and why in some ways it is far more difficult than the war in Iraq. This is a view...