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  • The Trend May Not Be Your Friend

    Two weeks ago I presented my thoughts on the current economic situation at my 6th Annual Strategic Investment Conference in La Jolla (co-hosted with Altegris Investments). The speech was well-received, at least to judge from the comment forms. So this week and next, we are going to revisit that talk (with a few edits). Let's start with a little set-up to explain the first few paragraphs.

    My speech was Saturday morning. On Friday, I wore a nice grey suit with a Leonardo tie. For those who know about Leonardo's, they are 'statement' ties. I should note that Tiffani picked the tie out for me about ten years ago and persuaded me to wear it. It took some getting used to. It is 16 silk-screened colors, bright blues and pinks and grays, the central feature of which is a very vivid parrot. It is not subdued.

    When my good friend George Friedman of Stratfor gave his speech on Friday, he commented rather derisively about my taste in ties, which got him a few laughs. This did not bother me too much since, while George is a brilliant geopolitical analyst, his sense of sartorial style is not exactly top-drawer. So now, let's jump into the speech....
  • Leverage Is an 8 Letter Word

    Leverage is an eight-letter word, which the markets now regard as twice as bad as the two four-letter words debt and pain (or fill in your own four-letter words). This week I try to give some insight into what is happening in the credit markets, some of it below the radar screen of most analysts. We will look at the potential for deflation and the Fed's response. There is a lot to cover, so let's jump right in. I talked with a friend who runs a collateralized loan obligation fund, or CLO. There are a lot of these funds in the Shadow Banking System. Typically they buy certain types of debt, with a lot of it in the bank loan space. In the old days of the last few years, banks would make loans to corporations and then sell them to CLOs and other institutions, making a spread on the loan and a profit on the servicing business. Some funds would typically leverage up somewhat and make a decent return....
  • Whip Inflation Now

    President Nixon instated price controls on the 15th of August, 1971. Inflation was a little over 4% at the time. Price controls manifestly did not work (resulting in shortages of all sorts and a deep recession) and were rescinded a few years later. President Ford went to Congress with programs to fight inflation that was running closer to 10% in October of 1974, with a speech entitled "Whip Inflation Now" (WIN). He famously urged Americans to wear "WIN" buttons. That policy too was less than effective, and the buttons, in a history replete with silly gestures by governments, should stand on anyone's top ten list of such silly gestures. This week we look at the cost of what could be a renewed effort to Whip Inflation Now, not just here but in countries worldwide. Will Trichet in Europe raise rates even as the European economy seems to be slowing down? If you think inflation is bad in the US and Europe, take a peek at Asia. And I ask, "What will Ben do?" It should make for an interesting letter....
  • How do You Spell Stagflation?

    In This Issue: How do You Spell Stagflation? Cooking the Inflation Books Gaming the Producer Price Index Consumer Spending is Up, but then Again, It May Be Down A Two Dimensional Problem Saudi Justice New York, Toronto, Europe and Thanksgiving This week...
  • Sea Change at the Fed

    Sea Change at the Fed "Of his bones are coral made: Those are pearls that were his eyes: Nothing of him that doth fade, But doth suffer a sea change Into something rich and strange" (The Tempest - Shakespeare) The term "sea change"...
  • The Mortgage Pig in the Python

    The Mortgage Pig in the Python Inflation is Baked into the CPI Numbers The Mortgage Pig in the Python Housing Starts Look to Stop A Few Thoughts on the Recent Credit Crisis Half of All Hedge Funds Gone? Golf, Weddings, and Europe With the economy increasingly...
  • Draw the Curve, Then Plot the Data

    Introduction This week we look at something which has far more potential to hurt the economy than subprime loans - the US Congress. We muse on inflation data and why the economy may do better than I think. But first, and quickly, my young assistant Micah...
  • Trim Inflation Now

    Introduction It's been a random walk through the data fields this week. The headlines say that inflation rose a mere 0.1% in August. The markets liked that. But digging deeper, the data is not as sanguine. We had the depressing Philly Fed manufacturing...
  • Central Bankers of the World, Unite Again!

    Introduction Is the Fed right to be worried about inflation, or is that so last quarter? What do musty old academic papers suggest about Fed policy? And can we translate that into something that gives us a clue as to why markets around the world are in...
  • Smoothing Out Inflation

    Introduction How can inflation be so low over the past few years if we see rising energy prices, ever-increasing medical costs and especially the cost of housing rising so dramatically? Today, for the first time we see inflation actually showing the results...