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

• Robert Reich (Robert Reich’s Blog): The great disconnect between stocks and jobs, November 18, 2009. How can the stock market hit new highs at the same time unemployment is hitting new highs? Simple. The market is up because corporate earnings are up. Corporate earnings are up because companies are cutting costs. And the biggest single cost they’re cutting is their payrolls. So they let people go and, presto, their balance sheets look better and their stock prices rise. Where is this heading? No place good. Without a major shift in policy - both at the Fed and in the White House - the economics point to a big stock-market correction and a double dip. The politics point to substantial losses for Democrats

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

• Robert Reich (Robert Reich’s Blog): The great disconnect between stocks and jobs, November 18, 2009. How can the stock market hit new highs at the same time unemployment is hitting new highs? Simple. The market is up because corporate earnings are up. Corporate earnings are up because companies are cutting costs. And the biggest single cost they’re cutting is their payrolls. So they let people go and, presto, their balance sheets look better and their stock prices rise. Where is this heading? No place good. Without a major shift in policy - both at the Fed and in the White House - the economics point to a big stock-market correction and a double dip. The politics point to substantial losses for Democrats

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

• Randall Forsyth (Barron’s): Synchronicity and stock prices, November 3, 2009. In a post-bubble world, equities move in sync with the cycle - worrying given the loss of momentum. As albert Edwards concludes, “the trend is your friend until it hits a bend. Beware, we may have just hit one.”

• Judy Chen (Bloomberg): Stiglitz says US is paying for failure to nationalize banks, November 2, 2009. Nobel Prize-winning economist Joseph Stiglitz said the world’s biggest economy is suffering because of the US government’s failure to nationalize banks during the financial crisis. “If we had done the right thing, we would be able to have more influence over the banks,” Stiglitz told reporters. “They would be lending and

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

• Joseph Stiglitz (The National Interest): Death cometh for the greenback, October 27, 2009. Whichever path we take, like it or not, we will be moving away from current arrangements, the dollar-reserve system. There are only two questions: will the movement away be orderly or disorderly, and will America play a part in shaping the new system that will emerge?

• Doug Kass (TheStreet.com): Earnings likely to trend lower, October 27, 2009. Underpromising and overdelivering is the oldest game in the investor relations handbook, as earnings expectations are often cagily crafted by corporate managements. In turn, many Wall Street analysts, emulating Ralph Wanger’s zebras, follow that company guidance in adopting a herd mentality that morphs into a Wall

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

• Jason Clenfield and Norihiko Kosaka (Bloomberg): US risks Japan-like “lost decade” on stimulus exit, Koo says, October 23, 2009. US officials contemplating an exit from record fiscal stimulus are in danger of repeating mistakes that plunged Japan into its lost decade of stagnant growth, according to Richard Koo of Nomura Research Institute. “This isn’t a cold, its more like pneumonia,” said Koo, author of “Balance Sheet Recession,” a 2003 book about the malaise that hit Japan after its stock and real-estate markets crashed in 1990. “We still need more government spending,” he said, adding it could take “three to five years to get out of this mess, even under the best of circumstances.”

• Brad DeLong (Caijing.com.cn): A moment too soon after the

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

• Michael Ehrmann and Panagiota Tzamourani (European Central Bank): Memories of high inflation, September 2009. Inflation has been well contained over the last decades in most industrialized countries. This implies, however, that memories of high inflation are likely to fade, because over time larger parts of the population have never experienced high inflation, whereas those who have might forget. This paper tests whether memories of high inflation affect agents’ preferences about the importance attached to price stability, using a large database covering over 52,000 survey responses from 23 countries over the years 1981-2000. It finds that memories of hyperinflation are there to last, whereas those of less drastic inflation experiences tend to erode after around 10 to 15 years. The recent decline in

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This post provides links to a number of thought-provoking articles I have read over the past few days that you may also find of interest.

• Robert Reich (The Huffington Post): Why the Dow is hitting 10,000 while everyone else is cutting back, September 22, 2009. So how can the Dow be flirting with 10,000 when consumers, who make up 70 percent of the economy, have had to cut way back on buying because they have no money? Jobs continue to disappear. One out of six Americans is either unemployed or underemployed. Homes can no longer function as piggy banks because they’re worth almost a third less than they were two years ago. And for the first time in more than a decade, Americans are now having to pay down their debts and start to save.

• David Weidner (MarketWatch): The three

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You might find these interesting:

Barry Ritholtz and Robert Reich believe investors should not be pleased with recent positive corporate earnings surprises. Hal Varian reports that Google Trends predicts further reductions ahead in new claims for unemployment insurance. Felix Salmon [1], [2] describes how Larry Summers lost a billion dollars for Harvard. ExxonMobil is investing big bucks in some radical new tools for controlling carbon emissions. Lucian Bebchuk worries that the proposed Goldman Sachs compensations represent a return to a dangerously flawed incentive structure. Dave Altig has a very interesting graph showing just how pessimistic consensus estimates are about this economic recovery. And here's one of the reasons I always try to find something that doesn't come from AP as a source any time I want to link to something in the news.

Or you could take heed of Bill Clinton’s former labor secretary Robert Reich. He reckons we’re not in for a “U” or a “V” or an “L” shaped recovery but an “X”. This from underground investor Jon Herring, writing for Investor’s Daily Edge:

We don’t usually care much for the Marxist musings of Clinton’s Lilliputian former labor secretary, Robert Reich. But he got it right when he recently commented on how the recovery from this recession will look.

It will not be a V-shaped recovery, nor a U. But an X.

“This economy can’t get back on track, because the track we were on for years […] simply cannot be sustained. The X marks a brand new track – a new economy. What will it look like? Nobody knows. All we know is the current economy can’t ‘recover’ because it can’t go back to where it was before the

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The Fed has chosen to use all of its might to fight deflation now. Of course, the side effect will be battling against high inflation in the future. However, this is the right thing to do.

Inflation can be controlled by making it harder to spend money. Interest rates can be raised and the supply of money can be cut off. The measures are painful, but the battle can be won.

Deflation is far nastier. Consumers who think a product will be cheaper tomorrow will hold off buying it today. Once people get in the habit of not spending, it is hard to get them to start again. Furthermore, the inability to raise prices hurts corporate earnings and limits wage increases. Deflation then becomes a self-fulfilling prophecy that lingers for an extended period of time.

We are seeing the effects of deflation in holiday shopping patterns. Consumers waited through all

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