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."

King Dollar and the Peripheries

September 12, 2014

Things are turning interesting again.

The Bear's Lair: The death spiral of capitalism

September 8, 2014

No less than six sovereign borrowers are now paying negative nominal interest rates on their 2-year borrowing in euros. In other words, they are making money by going into debt. In real terms, medium-term U.S. TIPS and British index-linked gilts have had negative interest rates for several years. Contrary to the views of the happy Keynesians around us, this is very dangerous indeed. If negative interest rates were to persist, the world's stock of capital would eventually disappear. Without capital, we'd be back up the trees.

Do Whatever it Takes to Shock and Awe

September 5, 2014

Draghi beats "Wall Street" estimates.  Markets rejoice.

The Bear's Lair: Where's the growth going to come from?

September 1, 2014

"We wanted flying cars, and they gave us 140 characters," said venture capitalist Peter Thiel in 2011. He put his finger on a central dilemma of the New Economy: its innovations can make money (usually through redirecting advertising sales), but they add little or nothing to the overall stock of human knowledge or long-term happiness. Professor Robert Gordon postulated last year that we may have come to the end of the era of perpetual growth. His theory looked foolishly pessimistic, but as the current sluggish expansion limps on, it begins to look more plausible.

Pondering the Summers of 2012 and 2014

August 29, 2014

The gulf between inflating global securities prices and deteriorating fundamental prospects widens by the week.

The Bear's Lair: Are we better off than in 2000?

August 25, 2014

The NASDAQ Composite Stock Index this week broke out to 14-year highs, reaching levels not seen since March 2000. It came within 10% of its all-time closing peak of 5,048.62 on March 10 of that year (by the end of that month it was already below current levels.) At that time I thought, along with many commentators, that absent major inflation we would not see that NASDAQ level again in our lifetimes, unlike the Dow Jones and S&P 500 indices. It is thus worth pondering why the index had reached such nosebleed levels again, and what about today's environment might justify higher valuations than in 2000.


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