John Mauldin's Outside the Box

For your Outside the Box today I treat you to another big, juicy slab of Grant Williams' Things That Make You Go Hmmm… I don't want to be all Grant all the time, but this is just so good I couldn't resist. This week, Grant is digging deep into the history and mystery of the European Union, taking us all the way back to the first inter-country treaty in April 1951 and then following the rather tortuous bureaucratic proceedings that led, by hook and by crook, to today's increasingly problematic eurozone.

Today's Outside the Box comes to us from Grant Williams, who covers the world from his perch in Singapore, in his always instructive and always entertaining Things That Make You Go Hmmm... I felt for him right at the outset today, because (like yours truly) he was trying really hard ... not to talk about Greece.And so, he announced, he was going to talk about Spain and about oil; but then, before he even made it through his opening paragraph, there was this:

"... ahhhh NUTS! They did it AGAIN.... ok... the Greek restructuring. It's not as though I could ignore it, now, is it? ... Oil can wait until next time.... no doubt it'll be an issue then too."

It's one thing to say that peripheral eurozone countries are better off leaving the euro, but how, exactly? And how severe can we expect the consequences to be, not only for those nations but also for the entire eurozone – and for the rest of us, worldwide? To minimize fallout from the event(s), it would be helpful to have a solid foundation, based on an historical understanding of similar events, on which we could build a reasonable set of expectations.

This week we have a shorter Outside the Box, from my friend David Galland at Casey Research, with an interesting insight into why gold can be considered as a poor investment by some rather influential investors (like Warren Buffett) while others may see it as the core of a diversified portfolio. As usual when I use someone's material for an OTB, I include a link at the end, if you want to look deeper. The rather large team at Casey Research specializes in gold, natural resources, and energy-related investments, for those with such an investing bent.

Today we dive into Part 2 of Woody Brock’s notes from his new book, American Gridlock (www.amazon.com/gridlock). He looks at what we can do in the future to prevent another crisis like we had in 2008, why we need to change, how we bargain with China (will be very controversial, in China at least!), what capitalism really is, and then he addresses the thorny issue of what it means to distribute wealth fairly. What can be said to those concerned with the top 1% of the population owning a grossly disproportionate share of the nation’s wealth?

This week we look at a report called “Working Out of Debt,” about debt and deleveraging, from the McKinsey Global Institute. This is a well-done summary of their longer paper, which has been updated, called “Debt and deleveraging: Uneven progress on the path to growth.” I discussed the original paper both in my regular letter and in Endgame. It is one of the best, most definitive pieces on the topic I have read. For those trying to understand how the deleveraging process will affect their particular world, I think it is a must-read. I have been spending more and more time thinking about the whole process of deleveraging, and am coming to think deleveraging is the critical and fundamental factor shaping the economic environment and impacting every decision countries and businesses are faced with. This paper was done by Karen Croxson, Susan Lund, and Charles Roxburgh; and they are to be especially commended for their insight and work.

As my good friend Gary Shilling says, in leading off his piece on 2012 investment themes, which is this week’s OTB, “This year is just the first step in the long-run journey that will continue to be dominated by The Age of Deleveraging” – which also just happens to be the title of Gary’s latest book. Whether you call it that or call it the End Game, as I have, it shapes up as a profoundly different and challenging era for all of us. Gary identifies 9 causes of slow global growth in the years ahead:

A new year is almost upon us, so now seems like a perfect time to step back from the (many) crises at hand and take stock of the big picture. According to my friend & fellow thinker George Friedman, the big picture of the next 10 years is this: America will dominate, and the American president will have to figure out how to act as global emperor without admitting that's what he is.