Economic Analysis

The Possibility of a Recession

Thoughts from the Frontline

July 14, 2006

The economy seems to be slowing. Will this be a mid-cycle slowdown as it has been the last two decades or will it evolve into a recession? In either event, does it presage a bear market in equities? Or is this just another oversold buying opportunity, a gift courtesy of panic selling because of the Israeli-Lebanon situation? If you follow the markets with any sense of history, we do in fact live in interesting times.

But before we jump into our main topics, let's turn our eyes to...

Shedding Light On Problems Facing The Fed

Outside the Box

July 10, 2006

So exactly how far is the Fed going to go? Are they done? Perhaps another raise in August? Could that not even be enough? These are all questions of uncertainty that have the faces of investors looking more puzzled than ever over Fed policy. In my Friday letter I commented on how the Fed is concerned about inflation, and how it is still making them uncomfortable pegged in the high end of their range. In this week's "Outside the Box," Paul McCulley, to much surprise, confesses that he wears...

The End of Medicine

Thoughts from the Frontline

July 7, 2006

This week we look at a very intriguing new book by good friend Andy Kessler called The End of Medicine , subtitled "How Silicon Valley (and Naked Mice) Will Reboot Your Doctor." As long-time readers know, Andy ran a high-tech hedge fund which went from $100 million to a $1 billion and got out more or less at the top with his client's money (and his) intact. Since then he has written a series of very fun books on the inside world of investing, all of which are on my recommended list.

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The Limits To Learning

Outside the Box

July 3, 2006

This week we look at mistakes and why we don't learn from them, at least not initially. Good friend James Montier explores the limits to learning we all have and offers some help on how to overcome them. Investors are constantly facing these challenges against their own biases when making sound decisions.

James is the Director of Global Strategy at Dresdner Kleinwort Watterstein, a London and Frankfurt based investment bank. He is also a prolific writer and author of the book "Behavioral...

What the Fed Really Said

Thoughts from the Frontline

June 30, 2006

Thursday saw a powerful response by the markets in stocks, bonds, commodities, and currencies to the communique from the Fed after its recent two-day meetings. Clearly, some were interpreting the communique to mean that the Fed had finally come to an end of its interest-rate-hiking ways. The immediate spin was quite "dovish" in terms of future rate hikes and concern about inflation.

That has become a pattern in the last year. The Fed releases its minutes, the immediate spin is that we...

The Leverage in the System and the Weak US Dollar

Outside the Box

June 26, 2006

In my Friday letter, "Thoughts from the Frontline," I touched briefly on the Yen Carry Trade and its effects on asset prices. Just what should investors be concerned with and profit from in a market bent on volatility and anchored by a new seat at the Fed? My good friends at GaveKal have written an excellent and timely article on global liquidity and its implications for the markets.

Charles and Louis-Vincent Gave, along with Anatole Kaletsky, are each co-founders of GaveKal, a global...

2006 Mid-Year Forecast

Thoughts from the Frontline

June 23, 2006

This week we will venture into the always hazardous area of making my semi-annual forecast. I make some non-consensus projections as to the economic climate for the next six months, and of course look at Fed policy. We will also quickly review my beginning of the year (2006) forecast and see what changes should be made. I also point you to a solid resource on gold and gold stocks at the end of the letter. It will be a very interesting letter, I think.

But first, a quick note on today's...

Deflating The Housing Bubble

Outside the Box

June 19, 2006

With so many variables to weigh in on, there has been a lot of speculation going around about how Fed Chairman, Ben Bernanke, is going to fare in his rookie season. The headlines of the financial press have been filled with reports of inflation and the dollar, but what of the U.S. housing market that once demanded so much investor attention?

This week's letter is from Paul Kasriel of The Northern Trust Company. Kasriel is Senior Vice President and Director of Economic Research, responsible for...

The Problem With Indexes

Thoughts from the Frontline

June 16, 2006

This week we look at index funds, and specifically at problems that certain types of capitalization weighted index funds have. It is intuitively obvious that capitalization-weighted indexes have a larger proportion of their assets in the larger stocks. (Capitalization-weighted means that larger stocks are given more "weight" or proportion of the index or fund.) But is this what a rational investor should actually want? I think the information we look at today will surprise many.

On...

The Perfect Value Investor

Outside the Box

June 12, 2006

With several of the market averages racking up significant declines, many are starting to wonder if this recent drawdown will present some value opportunities. My good friend James Montier has constructed an insightful study on the characteristics of value investing.

For those who are unacquainted with Mr. Montier, he serves as the Director of Global Strategy at Dresdner Kleinwort Watterstein, a London and Frankfurt based investment bank. He is also a prolific writer and author of the book...