Economic Analysis

Islands of Stability

Thoughts from the Frontline

April 21, 2006

"Year after year, economic theorists continue to produce scores of mathematical models and to explore in great detail their formal properties; and the econometricians fit algebraic functions of all possible shapes to essentially the same sets of data without in any way being able to advance, in any perceptible way, a systematic understanding of the structure and the operation of a real economic system." - Wassily Leontief, 1982

Have we improved since 1982? Was Wassily being a little...

Quarterly Review and Outlook - First Quarter 2006

Outside the Box

April 17, 2006

Bonds will be our subject for today. But this is not your ordinary outlook for bonds. Despite the current consensus amongst the street, HMIC's Van Hoisington and Dr. Lacy Hunt have chosen to take a contrarian's approach to the future of the bond market, because of their concerns for the US economy, which they present in detail.

Hoisington Investment Management Company focuses on long-term investment strategies based on Economic Analysis. The firm is a registered investment advisor specializing...

Richard Russell’s Wisdom

Thoughts from the Frontline

April 14, 2006

It is Good Friday, and I am going to take the writing day off. Next week we will delve further into the rich mines we began to explore last week on complexity theory and fingers of instability. But I am going to give you something better than my poor missives. Today we look at the chapter by Richard Russell from my book Just One Thing . To find out more about the book, you can click on the book cover nearby or go to

What can one say about my friend Richard...

Seasons of Gold

Outside the Box

April 10, 2006

Today we look at gold. I made my first dollar on gold stocks back in the mid-1980s when Doug Casey personally called me up and told me to by a particular stock. It was quite a home run and I have paid attention to what Doug says on gold stocks ever since. Lately he has been on a roll in his newsletter as well. 32 of the last 35 stocks he has recommended are up as of the latest issue.

I am pleased to be able to send you the introduction from Doug's recent edition of International Speculator....

Fingers of Instability

Thoughts from the Frontline

April 7, 2006

"To trace something unknown back to something known is alleviating, soothing, gratifying and gives moreover a feeling of power. Danger, disquiet, anxiety attend the unknown - the first instinct is to eliminate these distressing states. First principle: any explanation is better than none... The cause-creating drive is thus conditioned and excited by the feeling of fear ...." Friedrich Nietzsche

"Any explanation is better than none." And the simpler, it seems in the investment game,...

*@?#»! Bond Trading and the Tyranny of Indexation

Outside the Box

April 3, 2006

I religiously read Bill Gross of PIMCO. I particularly enjoyed this month's piece. Gross is talking to his clients about the problems of bond investing. Given that he sits on top of the biggest pile of bonds in the world, I find it always useful to pay attention to him. This month he discusses the problem of valuation, risk and indexing. He comes to some novel conclusions. Let me quote one line deep into the piece:

"What I'm suggesting is essentially this: to be successful in the...

When Will the Fed Stop?

Thoughts from the Frontline

March 31, 2006

This week the US Federal Reserve raised interest rates once again, for the 15th straight time. As everyone knows by now, the press release at the end of the meeting suggests that they will raise rates at the next meeting. But after that? Like children in the back seat of the car on a long trip, the markets keep asking "Are we there yet?" We look at that answer and more as we ponder what goes on in a central banker's mind.

First, let's look at the actual FOMC statement. I think, given...

Bleak US Economic Outlook?

Outside the Box

March 27, 2006

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 producing the Corporation's economic and interest rate forecasts.

The US consumer has kept the economy strong, but can they maintain the current trend? Kasriel has assembled a long list of economic numbers and asks the readers to look at the data and make their own determination on our economic future. He lays out a...

The Bottomless Well

Thoughts from the Frontline

March 24, 2006

Today we begin what will be an intermittent series on oil and energy. Each and every year there is a need for more and more energy of all kinds. The one thing we can say with confidence is that energy demand and usage in the next 20 years is going to increase dramatically as more than half the world aspires to middle class (and more!) life styles, which will put huge demands on our energy resources. Will oil production slow down and then peak in the future? Quick answer: yes. Will we run...

Perils of a New Globalization

Outside the Box

March 20, 2006

Two week's ago in my Friday letter, Thoughts From the Frontline, I wrote about the Dubai ports situation, Smoot-Hawley, globalization and protectionism. Today we look at two commentaries by Stephen Roach, Chief Economist of Morgan Stanley. The first was from Monday, March 13 and the follow up was on Friday, March 17.

Roach explores the newest data on trade flows and weighs in with his view of protectionism. Back in the 1930s politicians were trying to protect manufacturing jobs,...