Economic Analysis

Do Trade Deficits Matter?

Thoughts from the Frontline

December 16, 2005

"I don't know whether change will come with a bang or a whimper, whether sooner or later. But as things stand now, it is more likely than not that it will be a financial crisis rather than a policy foresight that will force change." - Paul Volker

How long can the United States continue with an ever rising trade deficit? How far can debt rise? Will it end, as Paul Volker, former Chairman of the Fed stated above, in a financial crisis? Will it end as a soft depression as Bill Bonner...

China Economic Service - November Report

Outside the Box

December 12, 2005

This week we look at China. Simon Hunt is one of the smartest China hands I know of. He has been visiting the Middle Kingdom for many years and has numerous contacts throughout government and industry. If you read the official releases, it looks like things in China will stay on the same path as recent years. Simon has been saying privately and now publicly that there are some very significant changes happening in China that will affect a number of markets over the years, as China...

As Though It Were Real Money

Thoughts from the Frontline

December 9, 2005

"Our analysis leads us to believe that recovery is only sound if it does come from itself. For any revival which is merely due to artificial stimulus leaves part of the work of depression undone and adds, to an undigested remnant of maladjustments, new maladjustments of its own." -- Joseph Schumpeter

How do we interpret the words of Schumpeter? Is the Austrian School of Economics right? Should the Federal Reserve have allowed the US (and thus the world) to go into a deep recession in...


Outside the Box

December 5, 2005

Whether short term rates are high today is one of the louder debates among economists. And why are long rates so low? Will an inverted yield curve mean what it has for the past 40 years, i.e., a slowdown and/or a recession?

This week's letter is a recent essay by Bill Gross, the Managing Director of Pimco, also known as the Bond King. Gross sits on top of the largest pile of bonds in the world. He thinks short term rates are high and nearing a peak for this cycle and that the...

Empire of Debt

Thoughts from the Frontline

December 2, 2005

"The economy in its entirety must continue to decline so long as more is being consumed than produced, and some part of consumption therefore takes place at the expense of the existing capital stock." - Friedrich August von Hayek

For the past few weeks we have looked at the argument for the case "This time it's different," made eloquently in a 130 page book called "Our Brave New World" by the very bright minds behind GaveKal Research. The trade deficit of the US does not matter, they...

Is indexing the answer?

Outside the Box

November 28, 2005

Investment managers around the world have become closet indexers, suggest my friends at GaveKal, which is messing around with the normal forces of the capitalistic marketplace. Today's Outside the Box is a Chapter from GaveKal's important new book, Our Brave New World. You can get a copy at or now from Amazon at It is a definite must read for any serious investor. (The book is the work of Charles and Louis-Vincent Gave and Anatole Kaletsky.)


Our Brave New World, Part Two

Thoughts from the Frontline

November 25, 2005

Is it different this time? Can it be that trade deficits do not matter? Or is our collective debt going to end in a period of financial crisis and tears? Is Alan Greenspan right when he says periods of low risk premiums end in woe for the participants?

For readers in the middle of this conversation, we are in a series on the debate held at a London restaurant between Charles and Louis-Vincent Gave (father and son) and Bill Bonner. The Gaves openly declared that "This time it's...

Deteriorating Global Liquidity

Outside the Box

November 21, 2005

Regular readers will know that I have mentioned my London partners, Absolute Return Partners, in the past. They have a monthly letter called The Absolute Return Letter. This week we will look at some recent comments by my very good friend Niels Jensen, the president of ARP. I was just in London last week for a few days, and the topic of this week's OTB was discussed at length over dinner. Niels seems to have a gift for great restaurants and even better wines, as well as strong and...

Hoping It’s Different This Time

Thoughts from the Frontline

November 18, 2005

What type of returns can we expect from the stock market? Do I think we are still in a secular bear market, even as the market tries to make new highs? What causes long term market cycles? Is there a psychological component to them? (Answer: yes.) And can we make any predictions about the future of the stock market? All this and more in this week's letter.

Last week we started a series on the debate between GaveKal and Bill Bonner on whether "It's different this time," centering on...

Scepticism is rare, or, Descartes vs. Spinoza

Outside the Box

November 14, 2005

This week's letter is from one of my favorite analysts and behavioral finance thinkers, James Montier of Dresdner Kleinwort Wasserstein in London. James wrote a chapter for my new book, Just One Thing, and this article is very representative of the insightful work he puts out.

This report by James explores why it is that humans tend to believe something that is not true. What he finds is that the more distractions or noise, the more likely a person is to believe something that...