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

• Paul Krugman (The New York Times): Interest rates: the phantom menace, November 20, 2009. Well, what I hear is that officials don’t trust the demand for long-term government debt, because they see it as driven by a “carry trade”: financial players borrowing cheap money short-term, and using it to buy long-term bonds. They fear that the whole thing could evaporate if long-term rates start to rise, imposing capital losses on the people doing the carry trade; this could, they believe, drive rates way up, even though this possibility doesn’t seem to be priced in by the market. What’s wrong with this picture?

• Michael Panzner (Financial Armageddon): Economists: wrong again, November 21, 2009. As if they didn’t cause enough

I concluded a post on stock markets over the weekend saying: “After equities’ seven-month climb, stock markets certainly look vulnerable for a decline. Two downside reversal days - on Wednesday and Friday - would seem to indicate that stocks could commence a pullback to work off the overbought condition, allowing fundamentals to reassert themselves.”

Global stock markets, as well as other risky assets, closed sharply lower over the past few days as concerns mounted over the sustainability of the global economic recovery and the outlook for central bank policy.

The performance of the major asset classes is summarized by the charts below, with the top one showing the period from the March 9 stock market lows until October 19 peak and the second one the subsequent period. The numbers indicate an all-change pattern in the performances as risk aversion re-entered financial markets and government bonds and the US

Robert Shiller, economics professor at Yale University and co-creator of the S&P/Shiller home-price index, talks with Bloomberg’s Carol Massar about the US housing market. The S&P/Case-Shiller home-price index climbed 1% from the prior month, seasonally adjusted, after a 1.2% increase in July, the group said. From a year earlier, the gauge fell 11.3%, less than forecast. (The S&P/Case-Shiller Home Price Indices can be accessed here.)

Click here or on the image below to view the interview. (There is no longer embedding available for the Bloomberg videos on YouTube.)

Source: Bloomberg (via YouTube), October 27, 2009.

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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 interesting.

• Matt Taibbi (Taibblog): An inside look at how Goldman Sachs lobbies the Senate, September 29, 2009.

Samuel Brittan (Financial Times): A cool look at the current deficit hysteria, October 1, 2009. In the early Victorian period the debt ratio was nearly 200 per cent and almost reached that level again in the early 1920s.

• Edmund Conway (Telegraph):  An inconvenient truth: financial crises are inevitable, October 1, 2009. The IMF’s new early warning system to avoid crises such as the credit crunch is doomed to disappoint.

• Edward Harrison (Credit Writedowns): The recession is over but the depression has just begun, October 1, 2009. This post discusses why we are in a depression, not

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

• John Hussman (Hussman Funds): We’re speaking Japanese without knowing it, September 28, 2009. After the bubble burst in Japan in 1990, Japanese banks were not compelled to properly disclose their losses either. The predictable result is that the problems resurfaced later, but worse, because they had not been addressed.

• John Authers (Financial Times): A risky revival, September 25, 2009. The speed of the rally is itself cause for concern. Historically, big sell-offs have typically been followed by big bounces. But as measured by the S&P 500, the current rally is stronger after six months than any predecessor, including those that followed the lowest points of the market in 1932, 1974 and 1982.

• Tom Petruno (Los Angeles

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

• Ambrose Evans-Pritchard (Telegraph): Our quarter-century penance is just starting, August 29, 2009 Never in modern times has there been such a flat contradiction between the euphoria of markets and the stern warnings of officialdom at central banks and financial watchdogs.

• Robert Shiller (The New York Times): An echo chamber of boom and bust, August 29, 2009. The global signs of a recovery in economic confidence seem puzzling. It is a large and diverse world, after all, so why should confidence have rebounded so quickly in so many places? Government stimulus and bailout packages have generally not been big enough to have such a profound effect.

• Phil Thornton (Times Online): Worst of slump yet

“… a social epidemic is supporting renewed confidence. This confidence can keep growing by contagion, as a kind of self-fulfilling prophecy, and we may see the markets and the economy recover further. But in an economy that is still unstable, the stories could also morph into different forms, the price feedback could turn downward and the dynamic could turn ugly again - just as it has in the past,” said Yale professor Robert Shiller via The New York Times.

More of Shiller’s views are discussed in the recent CNBC interview below.

Source: CNBC, August 31, 2009 and The New York Times, August 29, 2009.

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Stock markets recorded another strong week as further signs of economic stabilization emerged. The S&P 500 Index worked its way back to above the 1,000 level on Friday, and more upside lies ahead said Abby Joseph Cohen, Goldman Sachs’ market strategist, as she expected the Index to reach the 1,100 mark by year end.

This week’s batch of video clips not only covers the outlook for stock markets, but also discussions about the economy’s transition from recession to recovery and other topical issues. Appearing on camera are Jeffry Sachs, Robert Shiller, Larry Summers, Lakshman Achuthan, Joseph Stiglitz, David Rosenberg and David Hickey.

The selection starts off with two academics - Jeffrey Sachs and Robert Shiller - and concludes with a discussion about the “man-cession” - older white male workers being among the hardest hit by job losses.

Fora.tv: Jeffrey Sachs - global effects of crisis “Jeffrey Sachs, Director

With investors taking heart from better-than-expected earnings announcements (albeit only as a result of cost cutting negating a decline in revenue), the major US equity indices reached new highs for the year on Thursday/Friday and the S&P 500 Index closed in on the roundophobia 1,000 level.

Newsweek’s cover declared “The recession is over”, but a footnote stated “Good luck surviving the recovery”, implying a hard slog ahead.

Elsewhere, Washington hosted a US-China Strategic Dialogue, as the Chinese is increasingly focusing on America’s deficit, the value of the greenback and the implications for its Treasury holdings. After almost doubling, a mid-week sell-off in Chinese stocks raised concerns about the sustainability of the Chinese economic recovery and repercussions for the rest of the fragile global economy.

Unsurprisingly, four of the clips included in this week’s video compilation deal with Chinese -related issues. Covering these and other topical issues are David Rosenberg,

Robert Shiller was among the very few to warn of a housing bust before it happened. Now he says that although the housing market could be approaching a bottom, prices might remain in the “doldrums” for years to come as the US remains in a “liquidity trap” comparable to the one it faced during the Great Depression.

Though stock market prices are valued fairly, Shiller said, equities remained a “risky” investment because the US had not turned the corner on its fiscal crisis. He warned that stock prices “could fall dramatically”.

Click here for the article.

Source: MoneyNews, July 20, 2009.

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