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  • The European Banking Crisis: Assessing the Damage and a Look Ahead

    In my letter earlier this week, our guest writer, Grant Williams, gave Europe about the same odds of escaping crisis as a pitcher throwing a perfect game in baseball. That's 40,000 to 1. Take a look at this decision tree on Europe (below) from STRATFOR, a private intelligence company. Looks like they give Europe something more like the odds of a major-league pitcher leading in home runs. Not gonna happen.

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  • On G-20 and GM: Economics, Politics and Social Stability

    The Big Three have a new customer, and it isn't you. As Detroit's former heavyweights fight for a slice of a $25 billion bailout package, more than humble pie is being eaten. If the automakers fail and take their companies into bankruptcy, Michigan as we know it ceases to exist economically. The trickle-down impact could rapidly become a waterfall: the seat supplier in Georgia loses three major customers. The factory worker who makes seats is out of a job. The bank who holds his mortgage takes another hickey. Commercial lending at that bank dries up. Ad nauseum. In the best of economic times, this would be a troublesome scenario. In today's economy, it's easy to see how policymakers are as worried about social stability as they are economics. No astute person thinks that the Big Three will be able to return to the business practices of last year. And no intelligent investor should be trying to evaluate portfolio decisions the same way this year either. We have moved from the realm of finance to political economy, and for that you need a different set of tools and a different mindset....
  • 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....