Con-tango

Fortune telling III

Continuing… a short stop at Stephen Roach’s two articles.

The dark clouds in the horizon, according to Stephen:

I am not heralding the demise of globalization.  What I suspect is that
a partial backtracking is probably now at hand, as a leftward tilt of
the body politic in the industrial world voices a strong protest over
the extraordinary disparity that has opened up between the returns to
capital and the rewards of labor.  The extent of any backtracking is a
verdict that lies in the hands of the politicians — specifically, how
far they are willing to go in legislating an effort to narrow this
disparity.

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Fortune telling II

My next stop is at Barry Ritholtz’s very thorough piece (e-mail required), filling in for John Mauldin, who’s taking some time off. Have a good time John —you too, Barry.

In his Real Estate and the Post-crash Economy, Barry underscores the importance of real estate (RE) in supporting the post 2000 crash years, and stresses the prolonged and damaging effects to the economy, as the aftermath of the recent downturn in the housing market.

His conclusion:

…we find it hard to imagine how the economy avoids a hard landing. In a
post-crash economy, that’s about the best we can hope for.

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Fortune telling I

In an attempt to complete the weather map with the salient storms which will most likely assail investments next year, I did the rounds visiting some of the better respected and informed minds to hear what they had to say…

Of course, I’ll shine the cristal ball, and give it a try too.

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Merry Christmas

Courtesy of Hallmark Cards. Click image to view interactive greeting card

Will you still love me when I’m 64?

Paul McCulley and Saumil Parikh make the case for the Fed’s transparency, arguing that both the US and the world economies have benefited as a consequence of this openness. Although I intuitively agree with them, I don’t think their low interest rate charts help to prove their point, viewed against the backdrop of the Chinese exported deflation of the last 20 years or so…

I think the article’s utter importance rests elsewhere: according to recent Fed estimates, based on population growth, participation and productivity growth, aging will trim 1 % from potential US GDP growth during the following 10 years… Since populations from Europe, Japan and China are also rapidly heading in the same direction, this contraction could easily be extrapolated to world growth forecasts.

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Weathering global investments

John Rutledge finds investing akin to… meteorology, and I wholeheartedly agree with him, this excellent analogy allows us to portray a global backdrop of meaningful events and their interactions, which is quite helpful in the discovery process of investment opportunities.

This is the ongoing weathermap of global events as he sees them; any difference in pressure or temperature, or any change in the conditions, may allow us to ride a profitable arbitrage storm:

John Rutledge Investment Weathermap

As I’ve mentioned in previous posts, I feel one should still be long commodities and assets in general… a storm created by the additional injection of liquidity into global markets arising from the unavoidable slowdown of the US economy… too much paper following the same assets.

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A 2007 recession?

Paul Krugman

To start, I
urge you to visit Mark Thoma’s blog to take note of the comments sparked by
Paul Krugman’s… 2007 recession prediction in his New York Times
article of 1 December 2006. As a matter of fact, I
strongly recommend reading
all his early December posts, they all touch quite unsettling themes:
the USD
demise ,
the folly
of the war in Iraq and
the wall
to Latin American relations.

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