The Bear's Lair: The bearish global leading indicator

November 24, 2014

After an unexpected decline in the country's third-quarter Gross Domestic Product (GDP), Japan's Prime Minister Shinzo Abe called an early election last week, while postponing implementation of a sales tax rise into 2017. The global media were generally laudatory, explaining how he could extend his program of indeterminate "reform" while stimulating the economy further by means of a public spending boost. The praise of the media was not unexpected; Abe's policies are simply an extended, bolder form of those practiced almost everywhere else. However, since those policies are mistaken, the result will be highly unpleasant. Japan, for so long the glorious engine of the world economy, now looks likely to be first into disaster.

Memories - of 2012 and 2007

November 21, 2014

Draghi and the PBOC throw gas on a fire.

The Bear's Lair: Modern accounts are instruments of deception

November 17, 2014

One of the courses I took at business school was "Analysis of Financial Reports," in which we learned to deconstruct all the scam accounts that had proliferated in the late 1960s boom. Most of these companies, undone by negative cash flow, went bust after 1970. We were informed by the professor that the Financial Accounting Standards Board (FASB), set up in 1973, was introducing new and more rigorous accounting principles, so that pretty soon all the accounting scams of the late 1960s would become impossible. Accounts would become readily comprehensible, with few differences in approach between those of different companies.

Well, that didn't last long!

Financial Sphere Bubbles

November 15, 2014

Not an inopportune time to ponder Financial Sphere vs. Real Economy Sphere analysis.

Back to the Nineties

November 7, 2014

Draghi follows Kuroda and king dollar spurs EM contagion fears.

The Bear's Lair: Malthus was just 220 years early

November 3, 2014

The average earnings of U.S. men between 25 and 34 with only a high school diploma have fallen 25% since 1979, according to Census Bureau data. Women in the same category have done better, but their earnings also have fallen. Given that GDP per capita has risen 73% in real terms since 1979 on World Bank data, those are shocking statistics. Their implication is that the value of the labor of people with ordinary skills has gone into a deep decline even as the country and the world has gotten richer. In other words, Thomas Malthus' gloomy prophecies, written in 1798, were not wrong. They were merely early.

Kuroda, Bubbles and King Dollar

October 31, 2014

Kuroda stokes stock prices and king dollar.

The Bear's Lair: Silicon Valley is now a short

October 27, 2014

All bubbles burst eventually. Google has become a bigger political donor than Goldman Sachs. The tech sector is no longer the naïve capitalist entity that was startled by the Microsoft antitrust lawsuit in 1998. Venture capital money has flowed profusely into it for half a decade and valuations have reached to the sky. Some of its manifestations seem to have reached their natural limits, while others are running up against increasing legal and ethical concerns. In summary, even more than in 1999, for savvy investors the sector is now a short.

More Wackoism

October 24, 2014

Central banks win the day and week.

The Bear's Lair: When Socialism can appear to work

October 20, 2014

Bolivian President Evo Morales last weekend won re-election by a smashing margin. His eight-year rule has weakened Bolivian property rights, indulged in frequent nationalizations and demonized capitalism. Yet it has also produced Bolivia's best growth rates in several decades, far better than the orthodox and admirable policies pursued in 1985-2003. Thus Morales' policy of making Bolivian clocks run backwards seems reflected by the apparent successful defiance of theory in his economics. In reality, however, there is a fairly simple explanation, and it is an important lesson for other poor countries.

The Downside of Do Whatever it Takes

October 17, 2014

"Anyone who isn't really *concerned* doesn't understand the situation."

The Bear's Lair: Infrastructure is generally a bad investment

October 13, 2014

The International Monetary Fund's latest World Economic Outlook, in an unholy alliance with Larry Summers, claimed this week that a surge in publicly funded infrastructure spending would provide an increase in economic output with no downside risk. The truth is almost precisely the opposite: by indulging in ill-thought-out and boondoggle-filled public infrastructure spending, governments in rich countries leave their long-suffering taxpayers gasping for their next dinner.

Derivatives Story 2014

October 10, 2014

Increasingly, it looks like "risk off" and big trouble.

The Bear's Lair: Half a trillion is still a lot of money

October 6, 2014

The latest estimate by the Congressional Budget Office of the federal deficit in the year to last Tuesday was $506 billion. The deficit is expected to improve marginally this year, then jump back above $500 billion next year and worsen steadily for the next decade and thereafter. Given that we are five years into an economic "recovery," this won't do. Fourteen years of sloppy fiscal policies have left the U.S. fiscal position in a parlous state, only partly disguised by two decades of cheap money. Drastic action needs to be taken.

The New Mediocre Neutral

October 3, 2014

For a couple hours on Thursday things were beginning to look dicey.

The Bear's Lair: Fed policy makes spendthrifts of us all

September 29, 2014

Last week's inflation figures showed that the Federal Reserve's over-expansionary monetary policy wasn't revealing itself in inflation. But that doesn't mean it's doing no damage.

What We Know

September 26, 2014

Heightened global market instability has began to be transmitted to U.S. securities markets.

The Bear's Lair: Get on with it!

September 22, 2014

The Federal Reserve last Wednesday did not even remove the "considerable period" from its language about when it might start raising interest rates, thus delaying the likely start of rate rises even further than expected. This repeats its mistake of 2004-06, when it raised the federal funds rate at only one-quarter of a percent per meeting, undertaking 17 such tiny rate increases over a two-year period.

Only for Wonks

September 19, 2014

A week of really interesting market action and a new Z.1 "flow of funds" report - all overshadowed by Alibaba.

The Bear's Lair: The best peace conference of all

September 15, 2014

The bicentenary of the Congress of Vienna, organized to settle the questions outstanding from the 22-year Napoleonic Wars, is a slightly uncertain date. The Congress itself opened officially on October 1, 1814, and the Final Act was signed on June 9, 1815. But on the other hand, the British Foreign Secretary Robert, Lord Castlereagh, arrived in Vienna on September 13, 1814, and the official bicentenary conference (in Vienna, naturally) opens September 17. So this seems as good a week as any to celebrate the conference that (because the 1919 Treaty of Versailles was a failure and there was no peace conference after World War II) was effectively the foundation of the global system we inhabit today. It established a number of principles of international governance, some of which we have kept and others that we would do well to re-apply."

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