Economic Analysis

Consumers, Credit, and Complications

Thoughts from the Frontline

February 8, 2008

The evidence continues to mount that the US is in a recession. In this week's letter, we will look at the blind spot in the unemployment statistics, the continuing meltdown in the credit markets, and the simply awful service sector implosion in the ISM data, and then add a few thoughts on the housing market. There is a lot of data to cover, so this week's letter should be particularly interesting. The letter will print longer than normal, since there are lots of graphs.

But first, we are...

What Does a Recession Look Like?

Thoughts from the Frontline

February 1, 2008

What does a recession look like? How does it feel? What does it mean for your life and your investments? We explore these questions and more in this week's letter. I have been working on this letter all week, and think you will find it interesting.

But first, one interesting observation and a request for help on a fun project. Last week, I was in Europe. I walked across the street from my hotel in Geneva and was delighted to see a Starbucks. While I initially made fun of people who overpaid...

The Geopolitics of Dope

Outside the Box

January 31, 2008

Protecting the border is a big part of the presidential political debates. This week in a special edition of Outside the Box, my friends at Stratfor give us yet one more reason why we should be concerned when we look south. The topic not only concerns security, but our economy. The drug trade is becoming a problem. This is a short but very disturbing letter, but you should read it.

Stratfor continues to provide insightful and pertinent research on economic and geopolitical events and their...

The Dash To Trash And The Grab For Growth

Outside the Box

January 28, 2008

This week we look at a very thoughtful essay by an old Outside the Box friend James Montier. James is now working at Societe Generale in London. He is one of the truly great minds on the psychology of investing, as well as proving great research on how to structure your portfolio. IN this week's essay, entitled "the Dash to Trash and the Grab for Growth," James shows how investors tend to do the wrong thing at the wrong time in times of market volatility. This is a longer letter with lots...

What Does the Fed Know?

Thoughts from the Frontline

January 25, 2008

It had been my original intention to devote this week's letter to the view from Europe, as I have been here for the last week, but events have changed that goal. The Federal Reserve made a very rare inter-meeting rate cut of 75 basis points this week, after the worldwide markets were in turmoil. Many pundits suggest the Fed was responding to the worldwide collapse in stock prices. This week we examine that suggestion, and I will offer an alternative explanation. I am beginning this letter...

Words From The Wise

Outside the Box

January 21, 2008

This week we do something a little different in our Outside the Box. Every weekend I get a very information-filled blog called Investment Postcards from Cape Town ( by Dr. Prieur du Plessis. In it he highlights what he thinks is the most important portion of the writings of 10 to 15 analysts from around the world on the state of the economy and investing, and summarizes the news and data. I find it very useful, as Prieur generally finds a lot of interesting...


Thoughts from the Frontline

January 18, 2008

After a wild week in the markets, there is so much to write about, it is hard to know where to start. The headline number says jobless claims fell 20,000. That would be good news, if it were true. Sometimes you need to look behind the curtain to see how these statistics are made. As we will see, claims were actually up by 26,000. I wrote in my annual 2008 predictions that the big story of the year would turn out to be credit default swaps and counter-party risk. I will admit to thinking it...

Pyramids Crumbling

Outside the Box

January 14, 2008

This week look at a short but very important piece by Bill Gross. He has my same concern about credit default swaps, but he puts a number to it. He thinks the cost to the world economic system could be in the $250 billion dollar range. Add that to the $250 billion in losses due to the subprime markets, and you are starting to talk real money. The Shadow Banking System is at the center of the problem. I trust you will find this of interest.

Bill Gross was just named Fixed Income Manager of the...

What Are They Thinking?

Thoughts from the Frontline

January 11, 2008

In the past week, I have been in the car coming home late from work, with the presidential debates are on the radio. It is very discouraging to listen to what passes for economic literacy among the candidates. In reality, many candidates are espousing policies that are quite dangerous at worst, or simply misleading at best. Far too many in both parties tell a frustrated America what it wants to hear, rather than the economic reality. The Republicans have some of the worst offenders.

So, today...

Minding the Hinges on Pandora’s Box

Outside the Box

January 7, 2008

This week in Outside the Box John Hussman of The Hussman Funds strives to shed light upon the tumultuous and perplexing state that is the stock market. Having metaphorically, as in the Greek tale, driven by curiosity, opened Pandora's Jar (Box) of financial fantasy and unleashed the evil that has come to pass in the guise of subprime, all that remained was hope. Hussman intertwines hope with caution as we venture into the new year.