John Mauldin's Outside the Box

John Mauldin reads hundreds of articles, reports, books, newsletters, etc. and each week he brings one essay from another analyst that should stimulate your thinking. John will not agree with all the essays, and some will make us uncomfortable, but the varied subject matter will offer thoughtful analysis that will challenge our minds to think Outside The Box.

John Mauldin's Outside the Box

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  • Zen Lessons in Market Analysis

    'Everything, including the market, is ultimately empty of a separate self. One market can only be understood and analyzed in the context of other markets and conditions. Supply and demand, in particular, should not be considered in isolation.'

    Long time Outside the Box readers are quite familiar with Dr. John Hussman, as he is a frequent choice for this column. But this week I think he has written one of his bests essays ever. He cleverly weaves in quotes from a Zen master who is his friend and gives us a very fresh look at market analysis. This is a thought piece and you should set aside some time to absorb the lessons. You will be well rewarded.

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  • Weakness Unmatched in 35 Years

    One of the best gauges of an economy is tax collections. No one pays taxes unless they have to, so collections are a real-world, real-time analysis of the US economy. And the best source I know of for tracking taxes is The Liscio Report, by Philippa Dunne & Doug Henwood. Tax collections are down. Philippa and Doug give us the actual numbers, which are not pretty. Bottom line? 'What does this all mean? It suggests that the consumer retrenchment in this recession will be deep and long, and will probably continue into any recovery. The American consumer is no longer the world consumer of last resort, and that's an enormous change for both this country and the rest of the world to get used to.'...
  • The Great Experiment

    There is a reason I call this column Outside the Box. I try to get material that forces us to think outside our normal comfort zones and challenges our common assumptions. And this week's letter from Hoisington Investment Management Company does just that. Let me give you two quotes to pique your interest: 'Monetary policy works by creating the environment for a renewed borrowing and lending cycle. This cycle would require that the debt to GDP ratio, which is already at a record level, grow even higher. Would such an outcome really be that desirable when the controlling problem of the U.S. economy is too much improperly financed debt? If the Fed were able to engender an increase in the debt to GDP ratio, this might merely serve to postpone the reckoning of the current debt levels while laying the foundation for an even more vicious unwinding down the road.' And: 'The only really viable option for federal stimulus is a permanent reduction in the marginal tax rates, as highlighted in the research of Christina Romer, incoming Chair of the Council of Economic Advisors. This would have the benefit of raising after tax rates of return, but the drawback in the short run of still having to be financed by an increased budget deficit. Over time, a massive reduction in marginal tax rates would be beneficial, but the operative word is time. Refunds, or transitory tax relief, will have no better results in stemming the recessionary tide in 2009 and 2010 than it did in the spring of 2008.' Van Hoisington and Dr. Lacy Hunt give us a seminar on the current bailout programs that is not the usual analysis we see in mainstream media. This week's letter requires you to think, but it will be worth the effort....
  • Does Unreal GDP Drive Our Policy Choices?

    I am back from Rob Arnott’s conference in Laguna Beach, and I must confess that if I had attended it before I wrote last week’s e-letter I might have had lower odds on the US political class solving the debt crisis, absent a real economic crisis forcing them to. There were several presentations that made the problems quite clear. It remains a tough issue.

    This week’s Outside the Box is a recent white paper by Rob, where he argues that the traditional way we look at GDP is flawed, because it overstates what is happening in the real, private part of the economy, which is the productive part. Government spending is either money collected from the private sector in the form of taxes or borrowed money that future generations must repay. While not likely to become a mainstream economic view, this is very useful for our own thinking about what constitutes productivity and investments. This is a short but powerful piece from one of America’s most honored economic writers.

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  • The Paradox of Deleveraging

    I have often commented about the problem of personal savings. We worry about the lack of savings here in the US, but many do not understand that if everyone started to save 5% of there income immediately that it would seriously impact consumer spending, pushing the US into a recession. It is a paradox, as Paul McCulley points out, that what may be good for the individual may not be good for the collective country. And in this week's Outside the Box, good friend and this week's Maine fishing buddy Paul McCulley writes about another paradox called the Paradox of Deleveraging. This Paradox is at the heart of the credit crisis. Many of you will not like his conclusions, as it calls for the government to step into the breach created by the problem he describes. But as I often point out, the purpose of Outside the Box is to make us think about ideas which may not be in our usual sources of information. Paul is the Managing Director at PIMCO, the world's largest bond manager....
  • The Geopolitics Of China

    No matter where in the world I am, in South Africa, in Europe, in La Jolla, there's one question I get asked over and over, "What about China?" And small wonder. The increasing impact of China in the last generation is just staggering and seemingly accelerating every day. If you're in the market for oil, minerals, arable land, equities or debt, you're bidding against Chinese government-sponsored entities with a $1 trillion warchest. And the list of markets where China is a key player grows every day. Bottom line: whether you're filling up your gas tank or trading credit default swaps, China's decisions impact your pocket book....
  • The Road To Revulsion

    What does a bubble look like and how do they end? In this week's Outside the Box, James Montier of Societe Generale in London looks at not only the psychological analysis, but also at the propensity for commentators to continually proclaim the end of the problem and a resumption of business as usual. He includes a fascinating piece from Marc Faber documenting the various quotes about how well the economy was doing from 1928-32. This makes for fun, if a little sobering, reading. I think you will find this letter very interesting....
  • Quarterly Review and Outlook - Second Quarter 2008

    There is a reason I call this column Outside the Box. I try to get material that forces us to think outside our normal comfort zones and challenges our common assumptions. And this week's letter does just that. I have made the comment more than once that is it unusual for two major bubbles to burst and for the conversation and our experience to be rising inflation and not a serious problem with deflation. Van Hoisington and Dr. Lacy Hunt give us a seminar on why it will be deflation that will ultimately be the problem and not the current inflation we are dealing with today. This week's letter requires you to think, but it will be worth the effort. Remember our lesson from Economics 101. If you raise the supply of something, in normal markets the price goes down. And if you increase the price, suppliers will respond by producing more....
  • Inflation Is Not The Problem

    This week we are going to do something unusual for Outside the Box. Normally I take an essay and send it to you to read. Today I am going to give you a link and strongly suggest you click to it. Long time readers are familiar with friend and comrade James Montier, who along with Albert Edwards, migrated to Societe Generale earlier this year. They are co-heads of Global Cross Asset Strategy and based in London. Kate Welling does some of the best interviews anywhere in her Welling@Weeden letter, and this one of Montier and Edwards is typical of her immensely enjoyable style. She gave my good friend Prieur du Plessis permission to reprint the letter, and I provide you with a link to his blog and if you scroll down 6 short paragraphs you get the link to the letter, which includes the graphics and is much more fun than just me cutting and pasting. You can also subscribe to Prieur's blog if you wish. Once a week he provides a very useful review of what was written the previous week....
  • The Financial Commentator on the Economy

    Late last week a letter from Jim Welsh crossed my desk. I started reading and found myself being pulled through his very thoughtful letter. I have not met Jim, but think this letter is worthy of an Outside the Box.

    Jim Welsh of Welsh Money Management has been publishing his monthly investment letter, "The Financial Commentator", since 1985. His analysis focuses on Federal Reserve monetary policy, and how policy affects the economy and the financial markets....
  • Thoughts on the Market Rebound

    This week we will look at two shorter essays for this edition of Outside the Box. The first is some thoughtful words by Tom Au on whether or not we have put in a true bottom for the market. I particularly want you to read his thoughts on what earnings will look like going forward, and whether we can get back to the highs in corporate earnings we saw in 2006.

    Tom is the executive vice-president of R. W. Wentworth, a contributor to Real Money at TheStreet.com and the author of 'A Modern Approach to Graham and Dodd Investing'

    In last Friday's letter I mentioned an article by William Hester, CFA, who is the Senior Financial Analyst at the Hussman Funds. While I quoted a few paragraphs from his essay, on reflection I think I will re-produce it below, as this is a very important concept. I have written in past letters and in Bull's Eye Investing about how powerful a driver earnings surprises can be (both positive and negative). Powerful bear and bull markets develop when there are numerous surprises in the same direction, re-enforcing market psychology.

    So, read Hester's essay with the knowledge of what Au writes about earnings. I think the two make a very powerful, thought-provoking concept. And I am off to Europe....
  • Long-Term Outlook: Slow Growth And Deflation

    This week I am really delighted to be able to give you a condensed version of Gary Shilling's latest INSIGHT newsletter for your Outside the Box. Each month I really look forward to getting Gary's latest thoughts on the economy and investing. Last year in his forecast issue he suggested 13 investment ideas, all of which were profitable by the end of the year. It is not unusual for Gary to give us over 75 charts and tables in his monthly letters along with his commentary, which makes his thinking unusually clear and accessible. Gary was among the first to point out the problems with the subprime market and predict the housing and credit crises. You can learn more about his letter at http://www.agaryshilling.com. If you want to subscribe (for $275), you can call 888-346-7444. Tell them that you read about it in Outside the Box and you will get not only his recent 2009 forecast issue with the year's investment themes, but an extra issue with his 2010 forecast (of course, that one will not come out for a year. Gary is good but not that good!) I trust you are enjoying your week. And enjoy this week's Outside the Box....

    And if you have cable and get Fox Business News, I will be on Happy Hour tomorrow Tuesday the 17th at 5 pm Eastern. Have a great week....
  • The Obama Administration and the Former Soviet Union

    Who's afraid of the Russian bear? As Russia makes a grab for power and influence, the rest of the world watches to see how the United States and her still-new president will react. As an investor, it's important that you're aware of global politics, as the ramifications reach beyond diplomatic relations and straight into the markets.

    I've included a piece from my friend George Friedman's company, STRATFOR, on The Obama Administration and the Former Soviet Union. It's the seventh in a series that explores how key countries have interacted with the United States in the past, and how their relationships with Washington will likely be defined during the administration of U.S. President Barack Obama. It's a must-read for informed investors.

    George has very kindly arranged for a special offer on a STRATFOR Membership just for my readers. I strongly encourage you to take advantage of this offer. Now more than ever, you need a wide lens on the world, as politics shapes the economy. There's no one better than George and his team at Stratfor at telling you what you need to know and why. I know you'll find them as valuable as I do....
  • The Missing Link to Global Rebalancing

    Introduction Over the past couple of years, I've written quite a bit about how the global economy has taken shape and why it is important to understand it when building one's investment portfolio. There have been many market pundits saying that...
  • Deconstructing Today's Ongoing Revolution In Finance

    Introduction General reader, today's Outside the Box is one that you are going to want to put your thinking caps on for. My good friend Woody Brock has kindly allowed me to present you with one of the sections from his quarterly comments. In his chapter...

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