Economic Analysis

The Wind Beneath the Economy’s Wings

Thoughts from the Frontline

March 17, 2006

"The U.S. outlook is all about the property market, which has been the wind beneath consumers' wings this decade." Paul McCulley, Managing Director, Pimco

The world seems to be breaking down into two camps: those who, like McCulley, think housing is critical to the growth of consumer spending and believe the housing market may be in for some rough weather, although the forecasts vary greatly from a mild frost to blizzard conditions. On the other side there are those who think the...

China Visit Report

Outside the Box

March 13, 2006

We once again turn our focus on China. Simon Hunt has been visiting China for many years and offers us his latest insight from a recent visit. Many analysts forecast the recent past into the future and the outlook on china is no different, but Simon says this is incorrect and China is about to go through a major change. As he sees it, China is changing its focus from growth at any price to one that might be a bit more rationalized.

This is a very important point and why this...

Smoot-Hawley Lives

Thoughts from the Frontline

March 10, 2006

This week we look into my worry closet and ponder whether the Dubai port debacle is a one-off thing or does it signal a rise in protectionism. The recent polls suggest I will upset about 90% of you, but I look at the deal from the very negative economic impact it could have on this country. We then briefly look at the potential for more Fed rate increases and at a disturbing Federal Reserve Bank report on US wealth.

But first, a brief paragraph on a new feature of the letter. We have...

A Look Inside The Housing Bubble

Outside the Box

March 6, 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. Not long ago Paul had a contest to try and come up with a new name for his Positive Economic Commentary and The Econtrarian: Your Alternative to the Econsensus won out.

In this edition he turns his focus on the housing market. Many are forecasting continued...

Central Banker’s of the World, Unite!

Thoughts from the Frontline

March 3, 2006

"Central Bankers of the World, Unite!" That at least seems to be the theme from the central banker's playbook. The US Federal Reserve, The European Central Bank and now even the Bank of Japan all seem to be in a mood to tighten the global money supply. What does this mean? We explore that thought and look at the US saving rate (or lack thereof), foreclosure rates and more.

But first, I want to once again mention that I along with my partners Altegris Investments will be hosting our...

Over the Rainbow

Outside the Box

February 27, 2006

Here is a different view on derivates that can help you with a basic understanding of the problem in the market and a look at gold. This comes from the HCM Market Letter by Michael Lewitt of Harch Capital in Florida.

This is a private letter for his clients and Michael is one smart guy with a deep understanding of the markets, especially the credit markets, and how they work. HCM deals in this world on a daily basis, so they can offer a somewhat inside view of derivatives and...

Probabilities of Recession

Thoughts from the Frontline

February 24, 2006

This week we look at the possible direction of interest rates both at the long end and the short end. Bottom line: history suggests there is some serious volatility in the future on the long end of the interest rate curve later in the year. The yield curve and the 6/50 Rule when looked at together reveal some very interesting insights. (This letter may print longer than usual, but that is because there are a lot of charts. In words it is actually shorter than most letters.)

But first,...

The Innovation Boom

Outside the Box

February 20, 2006

GaveKal released a new book last year called Our Brave New World and it has been the subject of several Thoughts From the Frontline letters. Steven Vannelli, of Gavekal, offers us another look at platform companies and argues that research and development (R&D), or intellectual property, is much more important that capital expenditures, or manufacturing ability. He then shows several examples of US companies that have increased R&D compared to capital expenditures.


The Conundrum of Risk

Thoughts from the Frontline

February 17, 2006

One of the positive things about international travel is that it gives me a large amount of time to read and think. This week we are going to look at some of that reading on the current issues surrounding the apparent willingness of investors to court ever increasing amounts of risk in the face of not only US central bank tightening but tightening by central banks everywhere, which has historically not been a bullish environment. I trust it will stimulate your own thinking.

But first,...

Yield Curve Conundrum

Outside the Box

February 13, 2006

Every month I read the outstanding commentary by Bill Gross, Paul McCulley and others at PIMCO. This month they have comments by Chris P. Dialynas, Managing Director, Portfolio Manager and Senior Member of PIMCO's Investment Strategy Group.

Dialynas offers his views on the flat yield curve, the new Bernanke era and the theory of a global glut of savings. He sees a global economy awash in liquidity due to the increased risk of investment and the Chinese currency being pegged to...