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  • Game of Thrones – European Style

    In 2009-10 it seemed like this letter was all Europe all the time. There was a never-ending crisis from one corner of the Continent to the other. That time seems to have slowly faded from our collective consciousness, but the Eurozone crisis is not over, and it will not end quickly or soon. Even if it seems to unfold in slow motion – like the slow build-up in a Game of Thrones storyline to violent internecine clashes followed by more slow plot developments but never any real resolution, the Eurozone debacle has never really gone away. The structural imbalances have still not been fixed; politicians and central bankers have still not agreed to solve major fiscal problems; the overall economy still disintegrates; unemployment is staggeringly high in some countries and still rising; and the people are growing restless.

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  • The End of Europe?

    Solving the Mayan Code
    To Solve the Crisis You Must Solve Three Problems
    Getting Simple About Europe
    How Much Risk Do You Want in a Government Bond?
    Do You Have a Spare €1.5 Trillion?
    Singapore, Cape Town, and Thoug

    One of the interesting things about being in Hong Kong is that I get to see the weekend edition of the Financial Times12 hours early. And the headlines were not all that pleasant. As I promised last week, we will cast our eyes to Europe and ponder what is in store for Europe for the year and the next five years. And what do we read on page 2? The "ECB raps revisions to draft a fiscal pact." Seems they feel there are too many loopholes, which will make the document meaningless … somewhat like the treaty they have now. And we further learn that "Greek default threat grows as talks falter." Seems there is a lack of agreement on how much of a haircut the investors ought to take, and the Greeks don't want to guarantee any future debt, just in case they need to default some more in the future. But they do want the €15 billion they need to keep the debt machine running for a few more months.

    hts on Hong Kong

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  • Where is the ECB Printing Press?

    Where Can I Find €3 Trillion?
    When Leverage Comes Back to Haunt You
    The German Dilemma
    So How Do We Solve the Eurozone Problem?
    Where Is the ECB Printing Press?
    DC, Cleveland, and New York

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    Filed under: , , , ,
  • European Summit: A Plan with No Details

    A Definite Plan (Minus Those Sticky Details)
    Dear Mario
    When Leverage Is the Kind-of Answer
    Meanwhile Back in Portugal
    Let’s Just Change the Rules
    San Francisco, Kilkenny, Atlanta, DC … and the World Series Loss

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  • The Contagion Risk of Europe

    The Contagion Risk of Europe
    Will the Euro Survive?
    A Greek Coup?
    No Good Deed Goes Unpunished
    Home Again, Home Again

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  • All for One Euro and One Euro for All?

    In This Issue:

    Economic versus Political Theory
    Trichet Says “Non!” Again
    What Will the EU Do?
    All for One Euro and One Euro for All?
    We’re Off to Europe

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  • Europe Throws a Hail Mary Pass

    In a 1975 playoff game, the Dallas Cowboys were nearly out of time and facing elimination from the playoffs, down 14-10 against a very good Minnesota Vikings team. The Cowboys future Hall of Fame quarterback Roger Staubach had no very good options. He later said he dropped back to pass, closed his eyes and, as a good Catholic, said a Hail Mary and threw the ball as far as he could. Wide receiver Drew Pearson had to come back for the ball and, in a very controversial play, managed to catch the ball on his hip and stumble into the end zone. Angry Vikings fans threw trash onto the field, and one threw a whiskey bottle that knocked a referee out. After that play, all last-minute desperation passes became known as Hail Mary passes. (That was a very thrilling game to watch!)

    And that is what Europe did last weekend. They threw a Hail Mary pass in an attempt to avoid the loss of the eurozone. Jean-Claude Trichet blinked. Merkel capitulated. Today we consider what the consequences of this new European-styled TARP will be for Europe and the world. We do live in interesting times.

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  • The Multiplication of Money

    The economy grew in the fourth quarter by 5.9%, the most in years. The adjusted monetary base is exploding. Bank reserves are literally through the roof. The Fed is flooding money into the system in an effort to get banks to lend. An historically normal response by banks (to increase lending) would have been massively inflationary, causing the Fed to stomp on the brakes. Despite raising the almost meaningless discount rate (as who uses it?), this week Ben Bernanke assured Congress of an easy monetary policy, with rates remaining low for a long time. Many ask, how can this not be inflationary?

    This week we look at some fundamentals of money supply and the economy. If you understand this, you won't get misled by people selling investments, telling you to buy this or that based on some chart that shows whatever they are selling to be what you absolutely have to have to protect your portfolio and/or make massive profits. And we touch on a few odds and ends. And yes, I can't resist, a few more thoughts on Greece. It will make for an interesting letter, as I'm writing on a plane to San Jose. And it will print a bit longer than usual, because there are a lot of charts.

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  • While Rome Burns

    When I sit down each week to write, I essentially do what I did nine years ago when I started writing this letter. I write to you, as an individual. I don't think of a large group of people, just a simple letter to a friend. It is only half a joke that this letter is written to my one million closest friends. That is the way I think of it. This week's letter is likely to lose me a few friends, though. I am going to start a series on money management, portfolio construction, and money managers. It will be back to the basics for both new and long-time readers. I am not sure how long it will take (in terms of weeks), but it is likely to make a few people upset and provoke some strong disagreements. Let's just say this is not stocks for the long run. And because many of you want some continuing analysis of the current crisis, each week I will throw in a few pages of commentary at the beginning of the letter....
  • Time for a Reality Check

    It is not just the US that is in recession. The world is slowing down, and rapidly. This week we quickly survey the rest of the world, and then come back to the US. We follow up with the implications for corporate earnings worldwide, and specifically address my speculations about earnings forecasts for 2009. Let's start with some charts from my friend Simon Hunt, out of London. The following chart shows World Merchandise Export Values and World Industrial Production falling off a cliff. This is the worst such period since the end of World War II. And as the data we will examine next indicates, it is likely to get worse....
  • The Problem with the Euro

    Last week I wrote that we could see a drop in the price of oil as speculators seemed to be storing oil in very large tankers and "slow steaming" them to port in a bet that prices would rise. When everyone is on the same side of the trade, the time is right for a reversal. This is especially true when there is a large potential supply sitting on the sidelines....