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Economic Analysis

Whither Europe and the Euro?

Thoughts from the Frontline

June 10, 2005

What if the Malthusian doom and gloom crowd is wrong? What if the trend of lower population growth clearly evident in the developed world is echoed in the rest of the world? This week we look at a remarkable book by Ben Wattenberg called simply "Fewer." It is about "How the New Demography of the Population Will Shape Our Future." His thesis has implications for currency valuations, public pensions and the future of Europe, among many other things. The book has given me a great deal of...

Rethinking Bonds and Another Conundrum

Outside the Box

June 6, 2005

This week's letter is again by one of my favorites, Stephen Roach of Morgan Stanley. We will look at two pieces, one from May 31st and another from June 3rd. The first article lays out why Roach is moving from a bond bear to a bull or at least neutral stance. Low inflation, slowing china, and low relative rates in other parts of the world will help keep our long end rates down.

The second article examines the movement of the dollar. If the current account deficit is to narrow, the dollar must...

Can the Fed Find the Sweet Spot?

Thoughts from the Frontline

June 3, 2005

The questions of the day seemed to revolve around Fed policy, the US trade deficit and the dollar. We look at all of these questions and more in today's letter. Specifically, I want to try to lay out three scenarios involving future Fed policy actions and what each possibility might mean for the US and global economies.

The Fed is in an extraordinarily difficult position. Some very distinguished observers believe the Fed should stop their tightening cycle now. Others think that not...

France and Leading Indicators

Outside the Box

May 30, 2005

This week is we look at two short articles on different topics from some of my favorite writers. The first is by Anatole Kaltsky of GaveKal Research and looks at some of the recent political and economic problems in Europe and what must be done to help turn the EU around. Germany recently had state elections (big upsets), the French vote on the EU constitution was this weekend (expected to be a rejection). These and other issues will have interesting long term implications for Europe and the...

The Strange Tale of the Bare-Bottomed King

Outside the Box

May 23, 2005

This weeks article comes from one of my must read economic analysts, Bill Gross of Pimco. Bill sits on top of the largest pile of bonds in the world and is often referred to as the Bond King. His latest Investment Outlook is called "The Strange Tale of the Bare-Bottomed King." Pimco had a Secular Forum in May and this is Bill Gross's take on some of the issues discussed.

Bill sees our current prosperity built not on productivity and technology but on finance-based consumption fed from asset...

The Greenspan Conundrum

Thoughts from the Frontline

May 20, 2005

"There is little doubt that, with the breakup of the Soviet Union and the integration of China and India into the global trading market, more of the world's productive capacity is being tapped to satisfy global demands for goods and services. Concurrently, greater integration of financial markets has meant that a larger share of the world's pool of savings is being deployed in cross- border financing of investment. The favorable inflation performance across a broad range of countries...

Kicks Just Keep Getting Harder to Find

Thoughts from the Frontline

May 20, 2005

"It seems like kicks just keep getting harder to find,
All your kicks ain't bringing you peace of mind,
Before you find out it's too late,
You'd better get straight," - The Monkees

Substitute the word "returns" for "kicks" in the classic Monkees hit and you get an updated boomer generation anthem. (Or maybe Peter, Paul and Mary singing "Where have all the returns gone? - a long time passing.") This week we look at issues involving pension funds, muse upon the size of the financial...

How Japan financed global reflation

Outside the Box

May 16, 2005

This week's letter is by Richard Duncan who is the author of one of my favorite books called The Dollar Crisis: Causes, Consequences, Cures. Richard is based in Hong Kong and is one of the more thoughtful financial analysts I know.

Many people have talked about Federal Reserve Governor Ben Bernanke's printing press speech in 2002, which created quite a storm with the media and financial writers. Richard notes that he repeated the theme of that speech while in Japan in 2003, but unlike us the...

The Problem With Indexes

Thoughts from the Frontline

May 13, 2005

This week we look at index funds, and specifically at the problems that the 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. But is this what a rational investor should actually want? I think the information we look at today will surprise many.

My good friend Rob Arnott has challenged the conventional thinking with an explosive new study just...

Peering into the Next Ten Years

Outside the Box

May 9, 2005

This week's letter is by Myles Zyblock, who is Chief Institutional Strategist & Director of Capital Markets Research at the Royal Bank of Canada. I have been reading Myles for a number of years, when he was first at another firm whose quality of work has dropped since he left.

Myles takes a look at what the next ten years might hold for investors in the equity markets. Using both PEs and an accounting based approach he concludes that investors will be very disappointed if they expect returns...