Thoughts From the Frontline, February 2007

The 51.9% Recession

February 23, 2007

What are the odds of a recession? According to a recent Fed study, they may be 51.9%. Close enough to 50-50 for government work. We analyze this study, look at a few graphs which show a major disconnect between the housing market and the US manufacturing and services sectors, and then close with some comments on yet another proposed rule change. But let's start with a few housekeeping items.

The latter half of this letter will be written primarily to my colleagues in the financial...

Gold, Housing and the Yield Curve

February 16, 2007

I have often written about the high probability of a recession following an inverted yield curve (where short-term rates are higher than long-term rates), based upon research which suggests the yield curve is our most reliable indicator of future recessions. I am often asked whether a yield curve causes a recession. The (very) short answer is no. But then what is the mechanism that makes it so reliable? Is it different this time? How can we believe that the economy has a few bumps in its...

Out of Africa

February 9, 2007

I start this week's letter somewhere over the Atlantic, halfway through an 11-hour flight from Frankfurt to Dallas. It has been an altogether marvelous 11 days in South Africa, speaking to over 1,000 people at 12 venues, giving a half dozen media interviews, and meeting with many individuals.

It had been 12 or more years since I was last in South Africa. The difference cannot be more palpable. The last time I was there, talking with friends and acquaintances about the future of South...

A Raging Bull

February 2, 2007

This week I am in South Africa. At the moment I am literally flying from Johannesburg to Durban in a single-engine Pilates PC 12, a very upscale Swiss-manufactured plane. I am told pilots will know and appreciate the plane. It is supposedly the safest plane in the world, which is somewhat comforting as we bounce through a few storm clouds (and thunderstorms later tonight of the way to Cape Town!). My business partners and hosts, Dr. Prieur du Plessis and Paul Stewart of Plexus Asset...