John Mauldin's Outside the Box

The closed-door meeting is a prime indicator of unpredictability. It's one of the most difficult elements for even the most savvy investors to encounter and plan for - or against. Usually we know the preemptive measures we need to take in order to protect our assets, and even make a few dollars in auspicious instances. But what about the information we can't access?

Luckily, we have options. Today I'm including an excellent video from my friends at STRATFOR, a global intelligence company. They shed light on a closed-door meeting between the Obama administration and 3 top Israeli officials. When speculation is rampant, there's only one source I trust for reliable insight, and that's STRATFOR. I encourage you to watch this video. Also, sign up to get their two free weekly intelligence reports for more door-opening insights on critical issues.

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.'

Today I offer you an insightful look at China's real estate market - a 'burgeoning bubble' that deserves a close eye as the possibility for breaking increases. Remember the chaos in Japan after their own housing dreamscape got violently yanked back to earth? As investors, we have to recognize opportunities - and know what to avoid. With a global economic crisis - and now surging housing prices in China - investors in any global market need to keep watch on political and economic developments around the world.

We all know that a large wave of Baby Boomers in the US are approaching retirement. But what about the rest of the world? And what happens when those retirees need to spend out of savings? There is more than just a credit crisis and a government deficit crisis in our future. A rising level of retirrees to workers is happening even as I write. And the US is not, for once, the center of the problem. As this week's writer of your Outside the Box Niels Jensen explains, we cannot all export our way out of the problem. There is a global adjustment that must happen and when it does, it will have serious consequences for all. This week's letter is guaranteed to make you think. Set aside a few minutes to do so.

This week for your Outside the Box reading pleasure I am pleased to offer you the beginning of a very intriguing interview with Neil Howe he did with my friend David Galland at Casey Research. I think Neil is one of the premier forward looking thinkers of our time. His book The Fourth Turning is one of the more important books of the last two decades. 12 years ago, he and the late Richard Strauss basically outlined the psycho-social dynamics of our current time and his predictions have been uncannily accurate.

Basically, he and Strauss demonstrated that the Anglo-Saxon world has a pattern of four repeating generational types. As each generation assumes its period of dominance, the character of the various nations change in a pattern that rhymes throughout 500 years of history. We are in the beginning–middle of what he calls the Fourth Turning. This is a lengthy (17 pages) but fascinating interview but one you definitely should read. It is too long for me to put up in its entirety, but if you want to read more there is a link to the full interview at the end of the article. Just type in your email and the people from Casey will send it to you. They will also add you to their very interesting letter written by members of their research team. And of course you can easily unsubscribe if you like, but you might want to read it for a few weeks to see if you like their angle on things.

One of my favorite sources of information is The Liscio Report by Philippa Dunne & Doug Henwood. Among other things, each month they survey all the states about tax revenues, expenses and then give us the results in a very pithy fashion. No one pays taxes unless they have to, and thus taxes tell us a lot about the current spending and income situation. Taxes are a far more reliable indicator then surveys, which most 'data' is based on. They also look at various trends in a variety of topics. No surprise, this issue they talk about the numbers on retail sales, noting certain segments are up (essential spending) but sales for non-essential items are way down. This is very interesting to me. It is, as they point out, part of the journey to the new normal. They graciously allowed me to send this letter on to you as this week's Outside the Box. Those of you who might wish to learn more about theme can go to www.theliscioreport.com or drop them a note at online@theliscioreport.com.