Two weeks ago in my "Thoughts from the Frontline" E-letter I wrote about trade imbalances. I quoted a significant portion of a speech by Anatole Kaletsky from GaveKal. It was part of a debate he had with Stephen Roach. Last week's "Outside of the Box" contained some very insightful and timely remarks on the current market conditions by the well known economist Stephen Roach.
The team at GaveKal sent me Roach's side of the debate which addresses Anatole's point of view on the subject of trade imbalances. While I do not want to look like an "All Stephen Roach, All the Time" letter the speech was so good I felt that we should use it this week. I trust that you will find this week's Outside the Box to be a "grand finale" on some of our most recent topics.
We are almost half way through the year and the markets are providing us with plenty of trends and issues which we must take into account. From 6 year market highs to the cooling of the housing market, from the energy bonanza to China's effects upon globalization, there is no shortage of topics of interest in the financial press. But as of late, I have been receiving several questions from my subscribers focusing special attention towards the recent commodity boom and the dollar with respect to the future of both.
Morgan Stanley's Chief Economist, Stephen Roach, provides us with some valuable insights on both of our subjects at hand. My long-term readers are familiar with Mr. Roach and the independent perspective that he provides on noteworthy economic conditions. This week's Outside the Box encompasses not one but two of his articles, a global outlook on the "Commodity Bubble" and "Dollar Spin." I entrust that you will enjoy Mr. Roach's commentary and seek to glean some wisdom from this wealth of information.
Two week's ago in my Friday letter, Thoughts From the Frontline, I wrote about the Dubai ports situation, Smoot-Hawley, globalization and protectionism. Today we look at two commentaries by Stephen Roach, Chief Economist of Morgan Stanley. The first was from Monday, March 13 and the follow up was on Friday, March 17.
Roach explores the newest data on trade flows and weighs in with his view of protectionism. Back in the 1930s politicians were trying to protect manufacturing jobs, but now they are reacting to the loss of white-collar jobs brought on by the internet and globalization. The developed world fears a decrease in living standards and the developing world hopes to increase theirs, but protectionism may bring about the worst outcome for both and that is why this was picked for this week's Outside the Box.
For the last two weeks in my regular Thoughts from the Frontlines, we have been looking at inflation. In keeping with that theme, we turn to today's note from Stephen Roach, Chief Economist of Morgan Stanley, who talks about the nature of what he calls the New Inflation. I think this is one of the more important insights Roach has had among a career with many of them. We close with a few paragraphs on Alan Greenspan from Martin Wolf, who writes for the Financial Times in the US version of the London business daily. Wolf is a jewel of a writer and makes a subscription to the FT worth it all by himself. The Financial Times is now delivered daily in many cities. You can find out more by going to http://news.ft.com/home/us.
These two articles offer us different views of the inflation, asset targeting and the critical role of central banks. They do help us think Outside the Box.
And I should note, I have been writing for some time that I thought Bush would nominate Ben Bernanke as the new Chairman of the Federal Reserve Bank. Now, we will see a lot of people critical of nominating a man who talked about dropping money from helicopters, but let me suggest to critics that they go back and really read that speech and some of his more recent ones. He did not really propose dropping money. It was tongue in cheek.
Bernanke writes and speaks in very clear terms, and I hope this fosters an era of a more transparent Fed. Which, I should note, Bernanke has argued for. I hope he does not adopt of policy speaking in opaque terms such that non one understands what he is really saying. I think a more open, transparent, collegial Fed board, with a very defined mission, would be good for the markets, rather than the guessing we all have to do now.
One of my favorite economists, Stephen Roach, of Morgan Stanley gives us an insight into what the latest economic shock may mean for the economy. Economic shocks often lead to a fairly predictable slowdown and recovery, but Roach argues that the Fed induced asset bubbles of the last few years may cause this current shock to prick "America's asset economy."
I hope Roach is wrong and that the imbalances in the economy work themselves out slowly rather than popping a bubble, but this makes for a thought provoking Outside the Box.
This week's letter is again by one of my favorites, Stephen Roach of Morgan Stanley. We will look at two pieces, one from May 31st and another from June 3rd. The first article lays out why Roach is moving from a bond bear to a bull or at least neutral stance. Low inflation, slowing china, and low relative rates in other parts of the world will help keep our long end rates down.
The second article examines the movement of the dollar. If the current account deficit is to narrow, the dollar must fall and interest rates must rise. The first part looked at why Roach does not expect rates to rise on the long end of the curve, which means the dollar rally must end and Asian currencies should rise. This type of insight is why Roach is one of the smartest economists around and picked for this week's Outside the Box.
Last weekend I had my second annual Strategic Investment Conference in La Jolla, California. One theme that interested me was that several speakers, including Rob Arnott of Research Associates, Paul McCulley of PIMCO and Richard Russell of Dow Theory Letters, were all negative about Alan Greenspan.
One of my favorite economists, Stephen Roach, of Morgan Stanley gives us a similar opinion. Roach takes a look at the last 6-7 years and the effect that the U.S. Federal Reserve has had on interest rates and bubbles. At some point we must work our way out of the imbalances and hopefully it can be done with a Muddle Through Economy and not a severe depression. That is why I picked Original Sin as this week's Outside The Box.
This week I put out my 2005 forecast that called for a See-Saw Economy. The theme being that the economy will not take off or crater but continue to move along at a relatively slow upward pace. There will be an end game to this cycle, but I don't see it this year.
One of my favorite economists, Stephen Roach, of Morgan Stanley gives us an insight into what one of the major components of that end game will look like. Let's take a look at his comments on the end of the carry trade and the consequences this could have on the economy in the coming year.
This week we look at the comments of one of my favorite analyst groups, the Morgan Stanley Global Economics Team, who's most recognizable member is Stephen Roach. I have been a big fan of Roach over the years and part of last week's commentary was a roundtable discussion by the group between Roach, Stephen Li Jen, Richard Berner, Joachim Fels, Andy Xie, Eric Chaney, David Miles, Riccardo Barbieri, Ted Weiseman and Gray Newman.
This distinguished group debates the dollar, deficit and other global imbalances between the US, Europe and Asia. I found it an interesting and highly insightful look at where the world economies stand today. A group as talented as this one is always able to help you think "Outside the Box."
This week's letter is from Financial News Online. Located in London, they are one of the leading sources of information about Europe's investment banking, fund management and securities industries. Financial News ran a piece last week that was a series of letters over the summer between two of my all time favourite analysts, Bill Gross of Pimco and Stephen Roach of Morgan Stanley.
Gross and Roach exchanged letters over the summer expressing their outlook on many current economic issues and allow us a glimpse into how they perceive the world today. One of the main concerns in their discussion was the U.S. dollar and they wonder if the "Buck is going to Duck?" I hope you enjoy their bantering as much as I did and it helps you think "Outside the Box."