This week in Outside the Box we will look at Bill Gross of Pimco's latest essay, addressing the ever expanding economic repercussions of the poorly understood CDO/CLO market, the off balance sheet structured investment vehicles (SIVs) and the economic abyss Bernanke and Company are attempting to lead the market out of with neither light nor guide. Bill sits on the top of the largest bond firm in the world, so they have some very unique insights into what is happening. I always pay attention to what Bill says, and you should too.
This week in Outside the Box I strive to address an issue that I have been meditating on for quite some time. Precisely, how have we arrived at the current credit crisis that now threatens the domestic and global economy. I believe one of the underlying reasons is what is termed the "Minsky Moment," the topic of this weeks Outside the Box. If we understand how we have arrived at this crisis, we may get some clues as to how it will unfold. I am going to take up other thoughts on this topic next Friday.
Charles Whalen has written a very clear essay. He is from the The Levy Economics Institute of Bard College which is a nonprofit, nonpartisan public policy research organization. I have quoted from papers from the Levy Institute on many occasions. The Institute is independent of any political or other affiliation, and encourages diversity of opinion in the examination of economic policy issues while striving to transform ideological arguments into informed debate. I have often found their papers to be very insightful. You can read a longer introduction and the supporting notes at http://www.levy.org/vdoc.aspx?docid=961.
This week in Outside the Box we bring you the text of a powerhouse speech by Michael E. Lewitt, made at the The Bank Credit Analyst Conference last week. We have been discussing the current market turmoil in our weekly letters for quite some time, addressing the adverse effects of CLOs, (collaterized loan obligations), CDOs, (collaterized debt obligations), SIVs, (Structured investment vehicles), what have you, outlining the how these products among others have been instrumental to the market decline.
Michael Lewitt strives to show that while the downturn is by no means negligible, it is not extreme and in certain segments of the market might have been driven by emotions and technical factors rather than by underlying weakness. The conclusion you might ask? Investment opportunity.