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John Mauldin's Outside the Box

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  • Absolute Zero

    It was Gary Shilling – way back in the last century – who first woke me up to the real whys and wherefores of deflation, with his 1998 best-seller, Deflation: Why it's coming, whether it's good or bad, and how it will affect your investments, business, and personal affairs. I had read various works on deflation, but nowhere was it put together as well as Gary did it. He followed it up the next year with Deflation: How to survive and thrive in the coming wave of deflation, and in that one he strongly urged his readers out of the stock market – just ahead of the 2000 dot-com bubble burst. But Gary has been so right over the past three decades. (He recently updated Deflation with The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation. It’s on Amazon at http://www.amazon.com/Age-Deleveraging.

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  • The End of QE2: Major Policy Shift Ahead

    This week’s Outside the Box is from my friend David Galland, an interview he did for The Casey Report, and it represents a philosophical train of thought more in line with Austrian economics and libertarianism than my own. But if we only read what we already think, then how do we learn? It is only when your ideas are challenged and you must determine why the other guys are wrong and you are right, that you can either become more firm in your beliefs, or change. And much of what David says in this interview resonates. (I wrote about the end of QE2 a few weeks ago.)

    The guys at Casey are natural resources, commodities, and precious metals investors. Yet David argues that cash might be the wise thing now, after pounding the table for years on gold. He believes that the end of QE2 will be more important and dramatic than most think. That it is coming to an end I have no doubt, so it is important to think about what the effects, if any, will be. There are those who argue that we can live without it now. I argued (and still do) that we should have never had it. The unintended consequences are the ones I worry about. We just don’t know. It was a crazy experiment, with no understanding of what would really happen. But hoping for the best is not a strategy, so let’s think about it. David provides us with some different ways to look at the process.

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  • Hoisington Fourth-Quarter Report

    Long-time readers of Outside the Box are familiar with the names Dr. Lacy Hunt and Van Hoisington. They are a regular feature here, as quite frankly, anything that Lacy writes or says I pay serious attention to. This is their regular quarterly report, where they outline seven things that are likely to retard US growth. An easy read, but take the time to think this through.

    Hoisington Investment Management Company (www.hoisingtonmgt.com) is a registered investment advisor specializing in fixed-income portfolios for large institutional clients. Located in Austin, Texas, the firm has over $4 billion under management, composed of corporate and public funds, foundations, endowments, Taft-Hartley funds, and insurance companies.

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  • The Age of Deleveraging

    Before we get into this week’s outstanding Outside the Box, I want to comment on QE2 and the efforts by some Republican economists to urge legislators to get involved to stop it (see the front page of Monday’s Wall Street Journal). That pushes my comfort zone a little too much.

    First, I am not a fan of QE2. Never have been. If it had been my call, I would have punted and told the guys in the Capital that the ball was in their court to get their fiscal house in order, because that is the main source of the problem. But Bernanke and the Fed felt they had to “do something,” to demonstrate they got the seriousness of the situation. If the only policy tool you have left is the hammer of printing money, then the world looks like a nail.

    Second, I doubt it works. It might be interesting to see what would happen (theoretically) if they decided to print $3-4 trillion. Now that would have a (probably very negative) impact. But it would show up on the radar screen. I think $600 billion just gets soaked up in bank balance sheets, sloughed off to world emerging markets (that don’t want it) and other hot spots, with some drifting into the stock market. But does it increase real final demand, which is what the Keynesians are so seemingly desperate for? I doubt it. And I just don’t see the transmission mechanism for QE2 to produce new employment of any statistical significance.

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