I love Grant Williams and his writing in his letter Things That Make You Go Hmmm... And this week's Outside the Box is the first section from his recent post, where he starts with a brief history of Gadhafi and ends up giving us a tutorial on oil pricing. This may be "inside baseball" (too much detail) for some of you; but these details are important, as the very ground of oil pricing is shifting away from the traditional sources. What will the mainstream media do? Wonder when they will shift, which will result in a LOT higher costs for most of the world. Besides, this is a fun read, and Grant is a great writer.
And quickly, this note From Dennis Gartman: "Finally... and we shall cover this at some greater length tomorrow... S&P has said over the weekend through one of its senior spokespeople in Europe that if a EUR-bond is underwritten it shall have the rating of the lowest rated constituent country involved and thus will have coupon far, far above that of Germany, or France or Belgium et al. A EUR-bond would thus have the credit rating of Greece!"
I may have to write about Europe again this week, as there is just so much going on. The key to watch is the German Constitutional Court decision, due Wednesday. If they rule against the euro, all h#$% will break loose. And they could, although I expect a more moderate outcome, as they realize the entire future of the euro project is riding on their ruling. Do they want to get blamed for imploding the euro?
This week's OTB comes at the end of Labor Day, when all my kids and various friends (some 30-odd) have shown up for food and grilling. I think I am a fair to middling writer and analyst, but I am a brilliant cook (none of this humble analyst stuff in the kitchen!), as all who get to sample my culinary offerings agree. Definitely not low-calorie offerings. Cooking is an all-morning and day affair. Partner Steve Blumenthal of CMG came down Monday morning for some needed businesses meetings, and it may be the first time we met in the kitchen while his partner was cooking. I had to attend to the serious stuff! Butternut squash/carrot soup must cook for 6-8 hours. Mushrooms, veggies, meat, grilling seasoning. They all take time and great attention to detail.
And Steve and Billy Peters (of Baton Rouge) took me to the LSU-Oregon game this Saturday evening in Cowboys Stadium with 87,000 fans, most of whom were from LSU. I have never seen such a rabid (the correct word) crowd. It may be something like English football crowds. I attend professional events all the time, but nothing prepared me for the volume of noise.
Have a great week. The house is starting to smell awesome, and my kitchen calls.
Your my ears are stilling ringing analyst,
Today's Outside the Box is from an old friend, but one who is new to my readers. Jason Hsu is a partner at Research Affiliates and helped create the Fundamental Indexes with Rob Arnott. Starting at Cal Tech, he went on to a PhD in economics, and is now a professor at UCLA and teaches in China and Taiwan. Wins all sorts of awards and has won the Rising Star of Hedge Funds award. In short, he is really smart.
He sent me this piece last week, and I asked if I could use it. He graciously acceded. It is on what Jason and Rob call "the 3-D Hurricane of Debt, Deficits and Demographics."
"Whether deficit spending truly has any significant impact on subsequent growth is rather irrelevant to the discussion; voters and politicians alike would simply misinterpret the economic literature and assume more consumption today will drive more growth tomorrow. In other words, and as scientific as one can put it ñ the Boomers have screwed Generation X."
As the hurricane season approaches, this is not a forecast for fair weather, but it's one we need to prepare for. This is a thoughtful piece with a lot of red meat, so let's jump in.
And if you like this, be aware that I read scores (if not hundreds) of pieces each week for Outside the Box. And now I'll bring you the 5-10 best of the best each week through my new subscription service, Over My Shoulder. If you like Outside the Box, then you're going to love Over My Shoulder. It's like having your own personal filter, with decades of analyst experience and access to exclusive resources. If your time is as valuable to you as your investments, click here to find out more about how I help you home in on the essentials.
Your looking for his all-weather gear analyst,
Dr. John Hussman is no stranger to Outside the Box readers. And his recent posting has my mind reeling. In essence he is saying that if the Fed wants to stop the QE and allow rates to rise, they must either reverse the QE or bring on inflation. And he does it with numbers and his usual strong reasoning. I really did read this 3-4 times, thinking through the implications.
“There are a few possible outcomes as we move forward. One is that the economy weakens, and the Fed decides to leave interest rates unchanged, or even to initiate an additional round of quantitative easing. In this event, it's quite possible that we still would not observe much inflation, provided that interest rates are held down far enough. Unfortunately, the larger the monetary base, the lower the interest rate required for a non-inflationary outcome. T-bills are already at less than 4 basis points. In the event of even another $200 billion in quantitative easing, the liquidity preference curve suggests that Treasury bill yields would have to be held at literally a single basis point in order to avoid inflationary pressures.”
You can read his latest work at www.hussman.net .
Note on Finland. The True Finns took over 19% of the vote, with the largest party getting slightly more than 20% and the number two a little less. Basically, 15% of Finnish voters used the True Finns to register their displeasure at the bailout at the cost of Finnish taxpayers. Germany is starting to talk about “restructuring” Greek debt, another word for default. The German banks must be getting in better shape if the talk is out in the open among German leaders – much as I said a year ago. Stay tuned.
Your wondering how the Fed will pull this off (without a real problem developing) analyst,
I get a lot of client letters from various managers and funds, as you might imagine. I read more than I should. But one that shows up every quarter or so makes me stop what I am doing and sit down and read. It is the quarterly letter from Hayman Advisors, based here in Dallas. They are macro guys (which I guess is part of the magnetic attraction for me), and they really put some thought into their craft and have some of the best sources anywhere. So today we take a look at their latest letter, where they cover a wide variety of topics, with cutting-edge analysis and sharp insight. I really like these guys, and suggest you take the time to read the entire letter.
Today (Tuesday) is the day I want you to start buying Endgame. The early reviews on Amazon are quite gratifying – writing a book is damn hard work, so when people say nice things it just feels good. Have a great week! Now let’s jump into the Hayman client letter.