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John Mauldin's Outside the Box

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  • 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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  • The Thinking Behind the Stimulus and Bailout Programs

    It is important to understand the thinking of those who are in fact making the decisions at the Fed and Treasury. In today's Outside the Box, Paul McCulley, Managing Director at PIMCO, gives us some insight into the thinking that is driving the massive stimulus and bailout programs. Whether or not you agree, it is important to have a handle on what is actually happening and the thinking behind it.

    As a bonus, let me give you a link to David Kotok's excellent and very clear analysis of the Public-Private Investment Program (PPIP). The PIPP is basically a call option financed by the US tax-payer. David shows us why as tax-payers we should be concerned....
  • Geithner, China, and the Specter of Technical Insolvency

    This week I bring you two different articles as an offering for Outside the Box. As a way to introduce the first, let me give you the quote from Merrill Lynch economist David Rosenberg about the rising threat of global trade protectionism: 'The Financial Times weighs in on the rising threat of global trade protectionism in today's Lex Column on page 14 ('Economic Patriotism'). The FT points out that the stimulus packages of many countries include 'buy local' provisions. At home, there is a proposed inclusion of a 'Buy American' provision in the economic recovery package and this could set off trade retaliation from importers of US goods. Here is what the FT had to say, 'It was trade protectionism that made the 1930s Depression 'Great'. Congress would do well to understand that it is in everyone's interest to keep trade open today.' I have long written that the one thing that could derail my Muddle Through (at least eventually) view point is a return to trade protectionism. Nothing could be more devastating to the hopes of a recovery. Nothing could more surely turn a recession into a depression, and a global one at that....