Economic Analysis

Breakpoint in Iraq: What Went Wrong

Outside the Box

August 10, 2006

Today I am sending out a Special Edition of Outside the Box. My good friend George Friedman at has posted a very powerful essay on the new situation in Iraq. I must warn you, it is disturbing for those who, like myself, want a positive and peaceful outcome in Iraq. But since our thinking and investing should reflect reality and not wishful thinking, I suggest you take the time to read this piece.

As I have said in the past, Stratfor is my main and favorite source for geo-political...

The Invisible Hand’s Impressive Work

Outside the Box

August 7, 2006

Tomorrow the Fed will be announcing whether they will continue to raise rates or not and many investors seem to think that a pause is a highly probably outcome. Controlling inflation has been the reason for prior rate hikes and I believe it to remain the key variable. With this in mind, I thought that it would be a good idea to share with you the new GaveKal piece by Louis-Vincent Gave.

As my long term readers know, GaveKal produces some thought-provoking and highly intelligent research on the...

A Thousand Barrels a Second

Thoughts from the Frontline

August 4, 2006

Today we take another look at the energy picture and how it will change over the next decade. Just as the world switched from whale oil to kerosene and from coal to diesel, we will see a change in how we find and use energy. That is inevitable. But the transition will not necessarily be easy or smooth. And there are some surprises along the way. The things we "know" and the assumptions we make about conservation of fuel and peak oil are probably wrong, and we need to get some key...

The Absolute Return Letter - July 2006

Outside the Box

July 31, 2006

My good friends and London associates, Absolute Return Partners, have recently released their monthly letter. The letter consists of two essays with the first by ARP President Niels Jensen and the second by partner Jan Vilhelmsen. Given that the equity sell-off around the world has been far more dramatic than in the US, I thought it might be useful to get a view from "over the pond."

Niels comments on the correlation between commodities and stocks and takes a look at what history can teach us...

The Return of Stagflation

Thoughts from the Frontline

July 28, 2006

The GDP data released Friday suggests the economy seems to be slowing. So naturally the stock market surges forward in a very strong move, convinced the bull market is back. After all, how can the Fed raise rates in a slowing economy? And if the Fed is not raising rates, then it follows, does it not, that the stock market will rise? Or so the logic of a 119-point rise, tantalizingly close to a new high for the Dow, seems to suggest. A review of the data says that may not be case,...

Quarterly Review and Outlook: Second Quarter 2006

Outside the Box

July 24, 2006

This week's letter is once again from two of my favorite economists, Van Hoisington and Dr. Lacy Hunt of Hoisington Investment Management Company in Austin, Texas. They specialize in management of fixed income portfolios for large institutional clients by setting long-term investment strategies based on economic analysis. They have been one of the most successful bond managers in the country. (I have no affiliation with them.) I eagerly read all of their writing and analysis, and find it to be...

Goldilocks or Micawber?

Thoughts from the Frontline

July 21, 2006

This week I write from Grand Lake Stream in Maine. It has been a long time since I have taken a week off from writing, but I think this is the week to do it. But that means, gentle reader, that you get an upgrade in quality, as my friends (thanks, Louis!) at GaveKal have graciously permitted me to use one of their most recent newsletters, where they talk about the recent inflation numbers, survey the markets in Japan and discuss Chinese growth and taxes. It is an interesting letter, and...

Mid-East Update: Confusion Before the Storm

Outside the Box

July 17, 2006

In my Friday letter, Thoughts from the Frontline, I wrote, "This week's events have made it clear why as investors you need to be able to get a handle on world events." The turmoil in the Middle East has only intensified since then, making the markets start off the week in the midst of geopolitical uncertainty.

I think you will find it interesting to read today's note from Stratfor on the Mid-East situation. Strategic Forecasting, Inc, or Stratfor for short as I noted last Friday is my single...

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...