Thoughts From The Frontline

This highly acclaimed blog is primarily focused on private money management, financial services, and investments. John Mauldin demonstrates an unusual breadth of expertise, as illustrated by the wide variety of issues addressed in-depth in his writings.

Thoughts From The Frontline

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  • The Curve in the Road

    The 'Bailout Plan' was passed. Will it work? The answer depends on what your definition of 'work' is. If by work you mean no more government intervention and no further costly programs and a functioning market, then the answer is no. But there are things it will do. This week I try to help you see what might lie ahead around the Curve in the Road. We look at how the rescue plan will function, see what is happening in the economy, and finally muse as to whether Muddle Through is really in our future. It will make for an interesting, if not very upbeat, letter, so strap in. I would like your promise to not shoot the messenger. I am just trying to give you some of my thoughts as to what may lie in our future. And remember, as you read this, we will get through it. There are better days a'coming....
  • Will the Real Unemployed Please Raise Your Hands?

    This week’s letter will be a very short part of a book I am writing with Bill Dunkelberg (the Chief Economist of the National Federation of Independent Businesses) on the future of employment. It has taken longer to write than I initially anticipated, for a host of reasons, chief among which is that the future is not as obvious as I originally thought. Diving into the data has brought a few surprises. It doesn’t help that I have (probably to the frustration of Dunk, although he is way too polite to say it) changed the focus from “merely” what we need to do to create jobs (which is still an important part of the book) to what kinds of jobs will the future bring and who will get them.

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  • Killing the Goose

    Peggy Noonan, maybe the most gifted essayist of our time, wrote a few weeks ago about the vague concern that many of us have that the current path we are on has the potential (my interpretation) for not just plucking a few feathers from the goose that lays the golden egg (the US free market economy), or taking a few more of the valuable eggs but of actually killing the goose. Today we look at the possibility that the fiscal path of the enormous US government deficits we are on could indeed kill the goose, or harm it so that it will make the lost decades that Japan has suffered seem like a walk in the park.

    And while I do not think we will get to that point (although I can’t deny the possibility) , for reasons I will go into, there is the very real prospect that the upheavals created by not dealing proactively with the problems (or denying they exist) will be as bad as or worse than the credit crisis we have gone through. This is not going to be something that happens overnight, and the seeming return to normalcy that so many predict has the rather alarming aspect of creating a sense of complacency that will only serve to 'kick the can' down the road.

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  • The Economy Gets a Margin Call

    As long-time readers know, my daughter Tiffani and I are interviewing millionaires for a book we will be writing called Eavesdropping on Millionaires. This has been one of the more personally impacting projects of my life, as the stories we hear are so very provocative. I hope we can transfer to readers of the book at least half of the impact we are personally experiencing. But at the end of each interview, we let the interviewee ask me questions. Often, they are along the line of 'Do you really think we will Muddle Through?' Sometimes they ask in need of assurance and sometimes they simply think that my stance is somewhat naïve. It is something of an irony that I am called a perma-bear in some circles and a Pollyanna in others. The Muddle Through middle has been lonely of late. So, this week I take another look at my Muddle Through stance. We look at some of the recent data on unemployment and retail sales, think about the implications of a falling trade deficit and a rising US government deficit, speculate about the potential for a serious stock market rally, and also comment on the potential for a GM bailout. There is a lot to cover, so let's jump right in. ...
  • 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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  • Somewhere Over the Rainbow

    We are 13 years into a secular bear market in the United States. The Nasdaq is still down 40% from its high, and the Dow and S&P 500 are essentially flat. European and Japanese equities have generally fared worse.

    The average secular bear market in the US has been about 11 years, with the shortest to date being four years and the longest 20. Are we at the beginning of a new bull market or another seven years of famine? What sorts of returns should we expect over the coming years from US equities?

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  • Europe on the Brink

    We have avoided Armageddon, at least for now. The cost to the US taxpayer has been a few trillion. Some in the media are loudly announcing the end of the recession. But we are not out of the woods yet. There are a few more bumps in the road. Actually, some of them are quite steep hills. As big as the subprime problem? Maybe.

    When asked a few weeks ago what was my biggest short-term concern, I quickly replied, 'European banks have the potential to create significant risk for the entire worldwide system.' This week we will glance "over the pond" to see what gives me cause for concern. Then we briefly look at a few of the bumps I mentioned, which are likely to stretch out any recovery, and maybe even dip us back into recession.

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  • Electing the Janitor-in-Chief

    This week we survey the economic landscape that the new president will inherit. It is a polite understatement to say that he will be getting a serious mess. In reality, the US goes to the polls this next Tuesday to elect a Janitor-in-Chief. He will face a task that rivals that of Hercules in cleaning out the Stygian stables (legendary huge stables that had not been mucked out for ten years). However, there are no convenient rivers at hand for a probable President Obama to redirect that will quickly be able to clean out the mess left in the stables of our economy. This will indeed be an Herculean task and one that will take most of the first term of the next administration. So, let's look at what will face the next president. It should make for an interesting, even if not optimistic, letter....
  • Buy and Hope Investing

    This week Professor Jeremy Siegel (author of Stocks for the Long Run) had an op-ed in the Wall Street Journal showing that stocks are now cheap. I was on Tech Ticker, and Henry Blodgett challenged me about my e-letter last week, where I talked about how expensive stocks are. So which is it? We look at Professor Siegel's work -- and I let you decide. But first, and quickly, I just wanted to take a moment and remind you to sign up for the Richard Russell Tribute Dinner, all set for Saturday, April 4 at the Manchester Grand Hyatt in San Diego -- if you haven't already. This is sure to be an extraordinary evening honoring a great friend and associate of mine, and yours as well. I do hope that you can join us for a night of memories, laughs, and good fun with fellow admirers and long-time readers of Richard's Dow Theory 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 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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  • The Subprime Debacle: Act 2, Part 2

    At the end of last week's letter on the whole mortgage foreclosure mess, I wrote:

    'All those subprime and Alt-A mortgages written in the middle of the last decade? They were packaged and sold in securities. They have had huge losses. But those securities had representations and warranties about what was in them. And guess what, the investment banks may have stretched credibility about those warranties. There is the real probability that the investment banks that sold them are going to have to buy them back. We are talking the potential for multiple hundreds of billions of dollars in losses that will have to be eaten by the large investment banks. We will get into details, but it could create the potential for some banks to have real problems.'

    Real problems indeed. Seems the Fed, PIMCO, and others are suing Countrywide over this very topic. We will go into detail later in this week's letter, covering the massive fraud involved in the sale of mortgage-backed securities. Frankly, this is scandalous. It is almost too much to contemplate, but I will make an effort.

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  • The Problem With Deleveraging

    In general, we consider it a good thing to save money and to 'owe no man anything save love.' But what happens when a debt-happy society wakes up and decides that saving is a good thing for everybody? What happens when banks and hedge funds decide (or are forced) to reduce their debt? What happens when businesses of all sizes find it harder to get loans to operate? In this week's letter we discuss 'The Great Unwind,' that process of deleveraging that we are now in the midst of. We also explore some recent economic data on the economy. It's a lot of ground to cover, so let's jump right in....
  • Thinking the Unthinkable

    Last week, in the first part of my annual forecast, I suggested that 2011 would be better than Muddle Through, with GDP growth in the US north of 2.5%. World GDP growth should be even better. This week we look at what I see as the real downside risks to that prediction. Oddly enough, the risks are not in the US but on the other side of both our oceans, in Europe and China. Plus, we will visit a few other items, assuming we have space (Bernanke’s recent speech just screams for some comments).

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  • The Great Reflation Experiment

    The question we have been focused on for some time now is whether we end up with inflation, or deflation, and what that endgame looks like. It is one of the most important questions an investor must ask today, and getting the answer right is critical. This week, we have a guest writer who takes on the topic of the great experiment the Fed is now waging, which he calls The Great Reflation Experiment.

    One of my favorite sources of information for decades has been and remains the Bank Credit Analyst. It has a long and storied reputation. One of their enduring themes has been the debt super cycle. Investors who have paid attention to it have been served well. I am taking a little R&R this weekend, but I have arranged for my friend Tony Boeckh to stand in for me. Tony was chairman, chief executive, and editor-in-chief of Montreal-based BCA Research, publisher of the highly regarded Bank Credit Analyst up until he retired in 2002. He still likes to write from time to time, and we are lucky enough to have him give us his views on where we are in the economic cycles. Gentle reader, we are all graced to learn from one of the great economists and analysts of our times. Pay attention. Central bankers do. You can read his extensive bio at www.boeckhinvestmentletter.com and I will tell you how to get his letter free of charge at the end of this letter. And, he told me to mention that his son Rob is now helping him write, so there is a double byline here. Now, let's just jump in.

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