Economic Analysis

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...

Greed by Four Lengths

Thoughts from the Frontline

February 10, 2006

This week we look at an interesting index of greed and fear, look at the yield curve and the new 30 year Treasury bond, the latest unemployment numbers and a lot more. What do they tell us? Is there a theme or at least a rhyme? Or is it all random noise sent by the market gods to lull us back into the mistakes of the past?

The markets are a race between greed and fear. Right now Greed is looking like Seabiscuit beating War Admiral by four lengths at the stretch. (As an aside, you can...

Contrarians At The Gate

Outside the Box

February 6, 2006

This week's letter is from John P. Hussman, Ph.D., President of Hussman Investment Trust. John manages the Hussman Strategic Total Return Fund - HSTRX and the Hussman Strategic Growth Fund - HSGFX and writes his Weekly Market Commentary.

Following are two recent Weekly Market Commentaries that touch on contrarian investing and price movements in the markets. Last week, James Montier told us that to succeed in investing you need to take a contrarian approach, but Hussman says "not...

Ahead of the Yield Curve

Thoughts from the Frontline

February 3, 2006

Last week we started a series on a very important book by friend Joe Ellis called "Ahead of the Curve." We continue this week looking at specific indicators that Joe thinks give us a heads up when the economy is about to slow down and the stock market will being a bear market. I am then going to marry those thoughts with some work on the yield curve, especially looking at what the yield curve may be telling us today.

Cutting to the chase, I am going to make an argument that it is...

On The Contrary: Why It Pays To Be Different

Outside the Box

January 30, 2006

Two weeks ago in Thoughts From the Frontline, I mentioned a piece by one of my favorite contrarians and behavioral finance analysts, James Montier of Dresdner Kleinwort Wasserstein. It was going to be the Outside the Box last week, but a previous letter by Montier was sent instead.

I normally try not to use the same author two weeks in a row, but this was an exceptional letter and I wanted to bring it to my readers. James pulls together research and observations from many...

Ahead of the Curve

Thoughts from the Frontline

January 27, 2006

The economy grew at a much slower pace last quarter, with GDP only moving forward by 1.1%. This week we look at why and see if we can mine the consumer spending data to give us clues about future growth. We are going to start a two part series inspired by a remarkable new book I am reading called "Ahead of the Curve," sub-titled "A Commonsense Guide to Forecasting Business and Market Cycles."

Joe Ellis was a partner at Goldman Sachs and was ranked as Wall Street's #1 retail analyst...