Economic Analysis

The Coming Collapse in Housing

Thoughts from the Frontline

November 17, 2006

This week I am in New Orleans at the annual New Orleans Investment Conference and quite frankly with so many good friends that I have given myself permission to not write a letter this week. But you will be getting an even better writer than me for this week's letter.

I arranged for good friend Gary Shilling to condense his 40 page letter on the housing market for you. While this letter will print long (for those of you who print the letter out), it is mostly charts, which Gary excels...

Inflation, Bond Yields, And The Market

Outside the Box

November 13, 2006

Today's "Outside the Box" will be a combination of 2 different writings. The 1st is an email that I received from Research Affiliates Chairman Rob Arnott in response to my letter last Friday, "Honey, I Created a Bubble." The 2nd is the latest article by the well-known fund manager, John Hussman. Upon reading both commentaries, I was struck by the similarity between the two. It behooves us to pay attention when two very intelligent gentlemen that both actively (and successfully!) manage billions...

Honey, I Created A Bubble

Thoughts from the Frontline

November 10, 2006

We have been told for months that the next interest rate move by the Federal Reserve is dependent upon what the data tells us prior to each meeting. If the data tells us that inflation is too high and/or the economy too strong, the Fed will continue in its pause mode or maybe even hike rates. If inflation comes down and the economy begins to soften, the next interest rate moves will be down.

But that begs the questions, "How reliable is the data?" and "How does one interpret the...

Back to Iraq

Outside the Box

November 9, 2006

The past couple of days have been filled with anticipation over the outcome of which party will emerge victorious during this year's elections. Adding to the flurry of activity, Defense Secretary Donald Rumsfield unexpectedly announced his resignation raising further questions about the future of American policy. Both the parties and individuals newly appointed to government positions will have an impact on both fiscal policy for the markets (dividend and taxes) and on our foreign involvement...

Near a Bottom in Housing?

Outside the Box

November 6, 2006

I touched briefly on the subject of housing in my Friday letter, "Thoughts from the Frontline" (you can view it here). Data from across the country points to a number of trends including declines in both new construction and existing home sales. Market "experts" are calling for both sets of outcomes with some saying that we have been through the brunt of the contraction and with others saying that further declines await us yet.

This week's letter is from Paul Kasriel of The Northern Trust...

The Return of the Muddle Through Economy

Thoughts from the Frontline

November 4, 2006

With each new slice of economic data the past few weeks, the bond market decided that the economy was getting softer and the potential for the Fed to start cutting rates was growing. Rates have been drifting down for the past few weeks. And then came today's unemployment numbers. The unemployment rate dropped to 4.4%. The bond market simply threw up. Yields on the 10-year bond rose a breathtaking 12 basis points in just a few hours.

But wait a minute. Why should the bond market worry...

Time-Varying Variables Vary

Outside the Box

October 30, 2006

Last Friday, I wrote about That Stubborn Yield Curve in my Thoughts from the Frontline letter. In it, I quoted a few paragraphs by Pimco's Paul McCulley, but upon reflection, I feel that his whole letter is worthy of taking a look at more in-depth. Paul writes a monthly commentary, the Global Central Bank Focus that, because of its well-researched and unique perspective, is always at the top of my reading list. As a Managing Director at PIMCO, Paul is an intelligent economist and a...

That Stubborn Yield Curve

Thoughts from the Frontline

October 27, 2006

There is an arcane debate going on in economic circles. How fast can the economy grow without inflation becoming a problem? The answer may be, not as fast as we thought. And the answer matters because the people who have their fingers on the interest-rate trigger take this arcane stuff seriously. How you answer the question also has implications for the unemployment rate. Yes, there are people who worry about it getting too low. Plus, we look at the Dow. The Dow may be telling us more...

The Enduring Allure of China

Outside the Box

October 26, 2006

Today we cast our eyes on China, and specifically the mass migration of theoretically smart western capital into Chinese banks. This is another of a new series of special editions of "Outside the Box" that will feature the work of my good friends at Stratfor and released every other Thursday.

You can subscribe to Stratfor's Daily services at a 50% discount. I have arranged for those subscribing today to get their new 25 page quarterly predictions and analysis report, where they analyze each...

Just A Little Patience

Outside the Box

October 23, 2006

In my Friday letter, Thoughts from the Frontline (you can view it here), we looked at how valuation and prices change over market cycles. As I mentioned and have written about extensively in my book Bull's Eye Investing, market cycles should be viewed in terms of valuation and not prices. But how does one capitalize on such a way of thinking? Today's "Outside the Box" will show how several valuation styles and categories have performed over different time intervals, how each styles compares to...