Money and Finance
- Gmo: Capturing Domestic Demand In Emerging Markets: Neither Small Caps Nor Multinationals Are A Good Proxy - By Arjun Divecha
As a complement to his article published in the FT on Jan. 4, Arjun Divecha fleshes out more fully his argument that buying emerging small cap stocks or large multinationals is not the best way to tap into domestic demand in emerging markets......Excerpt:...
- The End Of The Growth Consensus - By John Taylor
This month marks the two-year anniversary of the official start of the recovery from the 2007-09 recession. But it's a recovery in name only: Real gross domestic product growth has averaged only 2.8% per year compared with 7.1% after the most recent...
- Hussman Weekly Market Comment: The Destructive Implications Of The Bailout - Understanding Equilibrium
One of the features that has enabled the bureaucratic abuse of the public during the past year has been the frantic, if temporary, flight-to-safety by investors. The Treasury has issued an enormous volume of debt into the frightened hands of investors...
- Hussman Weekly Market Comment
Now, assuming that the government is able to persist in misusing public funds and abusing public trust in order to protect the bondholders of these institutions from losses, it's reasonable to ask: Could the banks eventually “earn their way out”...
- Welcome To The Keynesian Nightmare - Annaly Capital Management
British economist John Maynard Keynes was an advisor to the American government in the 1930s when it was struggling to restart the domestic economy. The Depression was tragic but, to put it in historical context, Keynes and his client were dealing with...
Money and Finance
Michael Farrell - Annaly: Just Save, Baby, Just Save
As we sit on the precipice of the greatest fiscal stimulus package in our nation’s history, the question we are asked most often during our discussions with market participants is “When will it end?” Well, we can’t tell you the exact date, but I believe that a precursor will be the stabilization of mortgage cash flows. I can say that with certainty because from where we sit the current instability in the economy began showing its teeth in the mortgage market in 2002 and it will ultimately end once those cash flows stabilize again. When this occurs—at some uncertain future date—property valuations will have found a bottom and new run rates in GDP will have been established.
The sooner this happens, the better; but in the interim, we as a nation will be faced with policies designed to maintain the consumption-driven force of our domestic economy. My view is that this is what got us into this problem in the first place, and it runs counter to what Americans are now doing as rational economic beings—we are reducing consumption and increasing savings. The following is a construct of Newton’s principles. For every action, there is an equal and opposite reaction. We are witnessing the reaction of America’s primary Gross Domestic Product component, its consumers, as they retrench and repair their own balance sheets.
...
We should set a national target personal savings rate of 15% to provide the balance required to properly value and control our domestic economy. The increase to 15% amounts to a diversion of about $1.2 trillion in personal savings away from consumption, or a little more than the size of the proposed stimulus package. Our national security interests are at stake here, not simply the price of our standard of living. We all sense that higher taxes are coming at the Federal and municipal levels. Entitlements are going to be renegotiated. Social Security will be reformatted to reflect the fact that we are living longer and the pool of payers is shrinking. Medicare/Medicaid and healthcare will be restructured to a socialist model. But, we still need to pay for it. At this point in the economic cycle, savers are the key to survival, not consumers. With this in place, the America of the immediate future will look, at best, a lot like the America of the 1950’s. If we truly think that there is a short term solution via consumption then we deserve our fate. The long term view and solutions are much harder to take in the short run, but if Americans are incentivized to save their stimulus checks rather than spend them, it would help provide structurally sustainable fiscal health in the long run. This would position the country to win the economic war rather than the current battle.
The answer is that we need to swallow the full tablespoon of medicine or, to paraphrase Al Davis, the legendary owner of the Oakland Raiders, “Just save, baby.”
………………..
Related book:
The Richest Man in Babylon (also available in an Audio Book)
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The sooner this happens, the better; but in the interim, we as a nation will be faced with policies designed to maintain the consumption-driven force of our domestic economy. My view is that this is what got us into this problem in the first place, and it runs counter to what Americans are now doing as rational economic beings—we are reducing consumption and increasing savings. The following is a construct of Newton’s principles. For every action, there is an equal and opposite reaction. We are witnessing the reaction of America’s primary Gross Domestic Product component, its consumers, as they retrench and repair their own balance sheets.
...
We should set a national target personal savings rate of 15% to provide the balance required to properly value and control our domestic economy. The increase to 15% amounts to a diversion of about $1.2 trillion in personal savings away from consumption, or a little more than the size of the proposed stimulus package. Our national security interests are at stake here, not simply the price of our standard of living. We all sense that higher taxes are coming at the Federal and municipal levels. Entitlements are going to be renegotiated. Social Security will be reformatted to reflect the fact that we are living longer and the pool of payers is shrinking. Medicare/Medicaid and healthcare will be restructured to a socialist model. But, we still need to pay for it. At this point in the economic cycle, savers are the key to survival, not consumers. With this in place, the America of the immediate future will look, at best, a lot like the America of the 1950’s. If we truly think that there is a short term solution via consumption then we deserve our fate. The long term view and solutions are much harder to take in the short run, but if Americans are incentivized to save their stimulus checks rather than spend them, it would help provide structurally sustainable fiscal health in the long run. This would position the country to win the economic war rather than the current battle.
The answer is that we need to swallow the full tablespoon of medicine or, to paraphrase Al Davis, the legendary owner of the Oakland Raiders, “Just save, baby.”
………………..
Related book:
The Richest Man in Babylon (also available in an Audio Book)
-
- Gmo: Capturing Domestic Demand In Emerging Markets: Neither Small Caps Nor Multinationals Are A Good Proxy - By Arjun Divecha
As a complement to his article published in the FT on Jan. 4, Arjun Divecha fleshes out more fully his argument that buying emerging small cap stocks or large multinationals is not the best way to tap into domestic demand in emerging markets......Excerpt:...
- The End Of The Growth Consensus - By John Taylor
This month marks the two-year anniversary of the official start of the recovery from the 2007-09 recession. But it's a recovery in name only: Real gross domestic product growth has averaged only 2.8% per year compared with 7.1% after the most recent...
- Hussman Weekly Market Comment: The Destructive Implications Of The Bailout - Understanding Equilibrium
One of the features that has enabled the bureaucratic abuse of the public during the past year has been the frantic, if temporary, flight-to-safety by investors. The Treasury has issued an enormous volume of debt into the frightened hands of investors...
- Hussman Weekly Market Comment
Now, assuming that the government is able to persist in misusing public funds and abusing public trust in order to protect the bondholders of these institutions from losses, it's reasonable to ask: Could the banks eventually “earn their way out”...
- Welcome To The Keynesian Nightmare - Annaly Capital Management
British economist John Maynard Keynes was an advisor to the American government in the 1930s when it was struggling to restart the domestic economy. The Depression was tragic but, to put it in historical context, Keynes and his client were dealing with...