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  • Forecast 2011: Better than Muddle Through

    It is time once again to throw caution and wisdom to the wind and actually make my 11th annual forecast. I have to admit this is the most stressful letter I write each year. I do at least 5-10 times more research and thinking about this issue than any other. On a positive note, this may be one of the more optimistic forecast letters I have done in a long time. But there are some asterisks, as always. We will survey the world, trying to peer through the fog of the future. There are some very interesting side trails we will want to explore. Did you know some events in Russia could have real ramifications for inflation in China, the US, and the world? I pay attention to the background details and bring them to you. So settle back as we tour the world.

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  • Unintended Consequences

    Correct me if I'm wrong, but I seem to remember that one of the reasons for QE2 was to lower rates on the longer end of the US yield curve. Clearly, that has not happened? Today we look at come of the unintended consequences of monetary policy, turn our eyes briefly to consumer debt, and wonder about deflating incomes. There are a lot of very interesting things to cover. (This letter will print long, but there are a lot of graphs. Usual amount of copy.)

    But first, the are some changes and upgrades being made to the database that houses the list of my 1.5 million closest friends. That means that some of you will be reading this on the website this week, rather than having the letter sent directly to you. If this letter doesn't show up for some reason, you can always go to www.investorsinsight.com and get it directly from the website. We should be back on track by next week. Sorry for any inconvenience.

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  • Recessions are on the Margin

    And the data out over the last few weeks tells us it is getting better. Does this take us out of the double-dip woods, even as the Fed is lowering its forecast? And what is a recession? Yes, we all know it's when the economy doesn't grow, but we are in a rather unique economic environment, this time. Maybe things are getting better, but is it enough to get us back on the road to full employment?

    Let's start off with what is going right. We had a slate of news over the past few weeks that was good. The ECRI weekly Leading Index, after some ugly downtrends, is showing signs of turning around. We have had small increases each week since October 15, and the annualized growth rate of the index is now only -3.1%, having increased for 12 weeks. Its recent low was in July. Yes, I know that a large part of that growth is in the financial sector, as the stock market is up and interest rates are low, but it does suggest that 2011 should not be a recession year.

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  • O Deflation, Where is Thy Sting?

    The CPI was out this week, and it showed a continued drop in inflation. There were those who immediately pointed out that this vindicated the Fed's move to QE2. We have to get ahead of this deflation thing, don't we? Well, maybe, depending on how you measure inflation/deflation. This week we look deep into the BLS website on inflation to see just exactly what it is we are measuring, and then take a walk down Nostalgia Lane. But first we look at what I think we can call The Sputtering Economy, because that will tie into our inflation discussion.

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  • Thoughts on Liquidity Traps

    I am in London finishing my new book, The End Game, which will be out after the first of the year, as soon as Wiley can make it happen. Working with my co-author, Jonathan Tepper, we are making good progress. We intend to quit (a book like this is never finished) tomorrow afternoon.

    I am going to beg off from personally writing a letter this week, but will give you something even better. Dr. Lacy Hunt offers us a few cogent thoughts on the unemployment numbers. The headline establishment survey came in much better than expected, but the household survey was much weaker. In addition, Dr. John Hussman wrote a piece last week that I thought was one of his best, on liquidity traps and quantitative easing, and that's included here, too. We are embarking on a course through uncharted waters. No one (including the Fed) has any idea what the unintended consequences will be.

    I remarked a few weeks ago that the Fed is throwing an inflation party and not sure whether anyone will come. Last night at dinner, Albert Edwards of Societe Generale noted that not only do they not know whether anyone will come, they do not know what they will do if they do come, how much they will drink, or when they will leave.

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  • Be Careful What You Wish For

    This week we turn our attention to the elections and their aftermath. Long-time readers know I am a Republican, but I offer some sobering advice to my friends on my side of the aisle: Be careful what you wish for. It's one thing to get a few votes. It's quite another to live up to promises that simply can't be kept. We will start our analysis by looking at the GDP numbers that came out today, and we will end by pointing out that there will be no easy choices. And then we can turn our attention where it should be, to the World Series here in Texas.

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  • The Ride of the Keynesian Cowboys

    To ease or not to ease? That is the question we will take up this week. And if we do get another round of quantitative easing (QE2), will it make any difference? As I asked last week, what if they threw an inflation party and no one came? We will take as our launching pad today's unemployment numbers, which serve to demonstrate just why the Fed may in fact be ready for some monetary shock and awe.

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  • The Morality of Chinese Growth

    This week I am at a conference in Houston. I must confess that I don't attend many of the sessions at most conferences where I speak. But today, the guys at Streettalk Advisors have such a great lineup that I am there for every session. But it's Friday and I need to write. The solution? This week you get a 'best of' letter. The best ideas I've heard and the best charts I've seen at this conference. Then we close with two short but very thoughtful essays from Charles Gave and Arthur Kroeber of GaveKal on 'The Morality of Chinese Growth.' Lots of charts and something to make you think. Should be a good letter.

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  • The Chances of a Double Dip

    I am on a plane (yet again) from Zurich to Mallorca, where I will meet with my European and South American partners, have some fun, and relax before heading to Denmark and London. With the mad rush to finish my book (more on that later) and a hectic schedule this week, I have not had time to write a letter. But never fear, I leave you in the best of hands. Dr. Gary Shilling graciously agreed to condense his September letter, where he looks at the risk of another recession in the US.

    I look forward at the beginning of each month to getting Gary's latest letter. I often print it out and walk away from my desk to spend some quality time reading his thoughts. He is one of my "must-read" analysts. I always learn something quite useful and insightful. I am grateful that he has let me share this with you.

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  • The Last Chapter

    This week you will get a kind of preview as this week's letter. I am desperately trying to finish the first draft of my book and am one chapter away from having that draft. I have promised my editor (Debra Englander) that she would see a rough draft next week, and the final version will be delivered on the last day of September. More on that process for those interested at the end of the letter. But this week's letter will be part of what will probably be the 4th or 5th chapter, where we look at the rules of economics.

    There is just so little writing time left that I have to focus on that book for a little bit. I am writing this book with co-author Jonathan Tepper of Variant Perception (who is based in London), a young and very gifted Rhodes scholar with a talent for economic analysis and writing. We each write the first draft of a chapter and then go back and forth until the chapter has been much improved. Alas, gentle reader, you will only get my first draft. You will have to wait for the book to get the new, improved version. But this is the last one I have to write. And Jonathan has done all his initial chapters. We are on the home stretch.

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  • How We Get Through This Mess

    The group was a Vistage group in which my daughter Tiffani participates. This is an organization of 12 businesspeople (in this case all CEOs of small businesses) who meet once a month to share and learn about better business practices, accountability, planning, and all the aspects of running a business. Every person I have ever met who has been involved in Vistage has had good things to say about it. I have watched it help Tiffani a lot. She truly runs our business now, allowing me to read and write and travel and speak. I am a very lucky man and proud Dad.

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  • Some Thoughts on Deflation

    The debate over whether we are in for inflation or deflation was alive and well at the Agora Symposium in Vancouver this this week. It seems that not everyone is ready to join the deflation-first, then-inflation camp I am currently resident in. So in this week's letter we look at some of the causes of deflation, the elements of deflation, if you will, and see if they are in ascendancy. For equity investors, this is an important question because, historically, periods of deflation have not been kind to stock markets. Let's come at this week's letter from the side, and see if we can sneak up on some answers.

    Even on the road (and maybe especially on the road, as I get more free time on airplanes) I keep up with my rather large reading habit. This week, the theme in various publications was the lack of available credit for small businesses, with plenty of anecdotal evidence. This goes along with the surveys by the National Federation of Independent Businesses, which continue to show a difficult credit market.

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  • It's More Than Just Birth-Death

    Just how dynamic is the US job market? If I told you we created over 4 million jobs in April, would you believe me? I had a long conversation with Mohamed El-Erian of PIMCO yesterday. He is openly speculating that employment may no longer be just a lagging indicator but may also be predictive. It is an interesting insight, which we will explore as we take a very deep look at US employment. And I answer a few questions about my thought that there is a 60% chance for a recession in 2011, and why there is a 40% chance we won't. What could change those numbers? We explore that and more, while I suffer from the injustice that LeBron will play with Wade and Bosh. Where's a nonproliferation treaty when you need it?

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  • The Dismal Science Really Is

    There's a reason economics is called the dismal science, and weeks like this just give it further meaning. In economics, there is what you see and what you don't see. This week we are going to look at the headline data we see and take a look at what most observers do not see. Then we will try and think about what it really means. With employment, housing and the ISM numbers, there is a lot to cover. And this letter will print out longer than usual as there are a lot of charts. Warning: remove sharp objects from the vicinity and pour yourself your favorite adult beverage. This does not make for fun reading.

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  • The Frog in the Frying Pan

    Tonight I am in Venice, but I have arranged for a special edition of Thoughts from the Frontline, written by Jonathan Tepper of Variant Perception, a research firm in London. I have been corresponding with Jonathan for some time, and we have had some solid, and lately quite frequent, conversations. I am very impressed with this young man, whose perceptions and insights I find quite thoughtful. We are working hard together to finish a book that will be called The End Game, which we hope to have out this fall. It deals with the end of the debt supercycle in the developed world and the consequences for economies around the globe. Depending on where you live, the investment implications can be very different. The book will be very global in scope, and our intention is to make it so simple even a politician can understand. In countries all over the world, difficult choices lie ahead. We hope to give people a framework for making those choices and understanding the consequences. Our situation is not pretty, but ignoring those choices would be the worst choice of all.

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