Economic Analysis

Europe: Running on Borrowed Time

Thoughts from the Frontline

July 25, 2015

“I am sure the euro will oblige us to introduce a new set of economic policy instruments. It is politically impossible to propose that now. But some day there will be a crisis and new instruments will be created.”

– Romano Prodi, EU Commission president, December 2001

Hoisington Quarterly Review and Outlook – Second Quarter 2015

Outside the Box

July 22, 2015

In today’s Outside the Box, my good friend Lacy Hunt of Hoisington Investment Management reminds us that since the 1990-91 recession, the 30-year Treasury bond yield has dropped from 9% to 3%, a downward move nearly identical to the decline in the rate of inflation, which fell from just over 6% in 1990 to 0% today. Therefore, Lacy says, “(I)t was the backdrop of shifting inflationary circumstances that once again determined the trend in long-term Treasury bond yields.”

During that 25-year...

Productivity and Modern-Day Horse Manure

Thoughts from the Frontline

July 17, 2015

“They just use your mind and they never give you credit. It’s enough to drive you crazy if you let it.”

– Dolly Parton, “Working 9 to 5”

Almost everyone wants to be more productive. I include myself in that group – there are lots of ways I could be more productive. When I have conversations with people I think are very productive, they almost always tell me they wish they were more productive. What more could anyone expect from them?

It’s Not Over Till the Fat Lady Goes on a P/E Diet

Thoughts from the Frontline

July 10, 2015

For the vast majority of investors, portfolio returns are generated by the equity markets or at a minimum heavily influenced by the equity markets. We have enjoyed an almost six-year bull market run in the stock market, which has helped heal portfolios after the devastating market crash of the Great Recession. So much so that many prominent market analysts have proclaimed the beginning of a new secular bull market. If we have indeed entered such a new phase, we need to recognize it for what it...

A Week of Unseen Things

Thoughts from the Frontline

July 4, 2015

“In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

“There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the...

Xi’s Anti-Corruption Campaign Is Key to China’s Prospects

Outside the Box

July 1, 2015

George Magnus is one of the most influential economists in the world today. From his position as chief economist at UBS for a number of years, he enjoyed a front-row seat to growth miracles, credit booms, and financial crises in major economies around the world and is widely credited with identifying the trigger points that eventually led to the global financial crisis in 2008.

Today, he works as an associate at Oxford University’s China Center, a senior economic adviser at UBS, and an...

Shoot the Dog and Sell the Farm

Thoughts from the Frontline

June 27, 2015

“If this were a marriage, the lawyers would be circling.”

The Economist, My Big Fat Greek Divorce, 6/20/2015

Greece is again all the buzz in the media and on the commentary circuit. If you’re like me, you are suffering terminal Greece fatigue. You just want Greece and its creditors to “do something already” rather than continually coming to the end of every week with no resolution, amid finger-pointing and dire warnings from all sides about the End of All Things Europe – maybe even the world....

Nature Rebounds

Outside the Box

June 24, 2015

The common meme in today’s world is that we are slowly (or perhaps even rapidly in some instances) destroying our global environment. Not just by way of global warming, but pollution, over-farming, water usage, and increasing use of all sorts of resources taken from the ground. Post-apocalyptic movies and books are the rage, showing us living in a world where man has ravaged his environment and our lives have been degraded if not destroyed. Our failure to deal with global warming and the...

Public Pensions: Live and Let Die

Thoughts from the Frontline

June 20, 2015

When you were young and your heart was an open book
You used to say live and let live…
But if this ever-changing world in which we're living
Makes you give in and cry… Say live and let die.

– Paul McCartney, the Bond movie theme, performed by Wings

The Importance of RMB Internationalization

Outside the Box

June 17, 2015

For the last four years, I have been highlighting the idea that when Beijing floats the renminbi, the  currency may go down, not up, which is the exact opposite of what those who accuse China of currency manipulation believe would happen. I had this very argument with Lindsey Graham two weeks ago at a small dinner in New York, where I listened politely to his positions on a variety of topics until he began talking about currency manipulation. Given that the preceding topic had been the Federal...