This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

• Gillian Tett (Financial Times): Could sovereign debt be the new subprime? November 22, 2009. I hope that the current calm in sovereign debt markets does not lull politicians into thinking that they can indefinitely avoid the need to take difficult fiscal choices. For if they do, those “safe” government bonds might start to look considerably less secure - not just to bankers, but to everybody.

• National Association for Business Economics: Recovery soon to lose “jobless” label, November 23, 2009. Reaffirming last month’s call that the Great Recession is over, NABE panelists have marked up their predictions for economic growth in 2010 and expect performance to exceed its long-term trend. “While the recovery has been jobless so far, that

...

by Edward Hugh: Barcelona Hungarian Prime Minister Ferenc Gyurcsány announced yesterday (Wednesday) that the government had reached an agreement with commercial banks intended to protect the interests of those who have taken out foreign currency loans. The agreement, which is expected to be signed early next week, has three key components: 1) At the request of the debtor the banks will allow the duration of the loan to be extended (with fixed monthly instalments) so that the depreciation of the forint “does not place an unbearable burden on the debtors". 2) FX debtors who deem that exchange rate fluctuations carry excessive risks for them will be allowed to convert their foreign currency-based loan to a forint loan. In this case the banks “will accept this request and make the switch without extra charges". 3) If a debtor finds him- or herself in a position where he or she cannot pay the monthly instalments, e.g. due ...

Hungarian Prime Minister Ferenc Gyurcsány announced this morning (Wednesday) that the government had reached an agreement with commercial banks intended to protect the interests of those who have taken out foreign currency loans.The agreement, which is expected to be signed early next week, has three key components:1) At the request of the debtor the banks will allow the duration of the loan to be extended (with fixed monthly instalments) so that the depreciation of the forint “does not place an unbearable burden on the debtors".2) FX debtors who deem that exchange rate fluctuations carry excessive risks for them will be allowed to convert their foreign currency-based loan to a forint loan. In this case the banks “will accept this request and make the switch without extra charges".3) If a debtor finds him- or herself in a position where he or she cannot ...

I have not written in some time about a theme that I think is an important one. Skeptics could probably argue that the reason I haven’t written about it was that the recent facts have contradicted my belief, though the fact is just that I haven’t gotten around to it. So, to put the cards back on the table, it is time to talk about valuation cycles. Many people can tell you that the average market P/E over the long term is something like 15 times. Of course, “average” doesn’t imply that the P/E is always 15. About half the time it is higher, and about half the time it is lower. The trick is figuring out in advance which half is which. In behavioral finance, some would argue that the market follows long-term trends in valuation. Rising valuations spark investor interest, and additional investors adding money to the market causes ...

I wrote up an article for RealMoney that drew a lot of what I would characterize as emotional responses. We have had a couple of clients have emotional responses to the current market volatility and some emotional comments on the blog.

A big picture way of thinking of this is that we have had a bad month. There might be more bad months to deal with or not but that is what we have had. I went to page 155 of the 2007 Stock Trader’s Almanac, the one with month by month changes in the S&P 500 going back to 1950, and I counted 53 bad months with a bad month defined as a 5% drop or more. So almost one a year. The one a year is less common than the 2-3 per year every few years and there were a couple of instances where there were more than three in a year.

An interesting tone has developed in the comments on my blog lately, one that has come up before, about different approaches to market participation.

The thing that gets lost in there sometimes is that there are many different methods of investing in the capital markets. If you spend time looking you will find research that says buying strength wins out. Spend a little more time and you will find research telling you to buy weakness. Same for selling strength and selling weakness.