Material Market

By | 2014-09-11T10:04:43+00:00 September 30th, 2011|Global Market Update|

Are we seeing a materials breakdown? Copper prices have been falling for weeks. Stocks tied to materials prices, like mining and metals companies, have gotten clobbered. These company’s fortunes rise and fall with the commodities that they extract. As commodity prices rise, earnings from mining go up, and vice versa. Is it time to jump in? For patient investors, now may be a good time. It’s often profitable to buy when prices have fallen significantly, and a broad index of basic materials stocks has [...]

Get Out of Debt Free?

By | 2014-09-11T10:03:53+00:00 September 29th, 2011|Global Market Update|

So how do you get out of debt? There are really four possibilities: save, default, inflate, or grow your way out. Saving is a possibility—the Irish seem to be doing that now. It worked for Canada, Mexico, and Sweden in the ‘90s. But it really works best with a small country with strong exports. And it’s hard: the public sector has to shrink, and wages fall. Default is another option. Russia defaulted in the late ‘90s, as did Argentina in ’01. After some disruption, [...]

The Luck of the Irish (Part 2)

By | 2014-09-11T10:02:09+00:00 September 28th, 2011|Global Market Update|

Can Ireland show the way forward? Ireland has dramatically reduced its deficit, and growth seems to be returning. Is this a model the US could follow? The intuitive appeal is visceral. After all, when families get into a hole, they need to tighten their belts, cut back on the lattes and leased BMWs, and live within their means. Could “expansionary contraction” work in a larger context? The US economy certainly could use some help. Government debt held by the public is now 450% of [...]

The Luck of the Irish

By | 2017-07-17T12:35:00+00:00 September 27th, 2011|Global Market Update|

Can Ireland show the way forward? A year ago the failure of Irish austerity was widely expected. Irish interest rates were similar to Greece’s; public sector pay was cut by 5-10%; and social welfare payments were cut for the first time since 1924. As unemployment hit 14%, many liberal bloggers commented that contractionary fiscal policy was, well, contractionary. They expected budget cuts to lead to higher unemployment which would lead to lower consumer spending and more layoffs, perpetuating the cycle. But a funny thing [...]

What Now?

By | 2014-09-11T10:00:33+00:00 September 26th, 2011|Global Market Update|

What should investors do now? Whenever the markets get crazy people ask how they should react to the craziness. But that’s the wrong question. The question is not how folks should respond—it’s what should investors have done to prepare. Investment is a forward-looking process. Markets try to anticipate the next set of data. Sometimes they get it wrong, which is why the stock market has predicted 10 of the last 5 recessions. But if you react to the markets’ craziness, you’ll go crazy yourself. [...]

Greek Fire?

By | 2014-09-11T10:00:01+00:00 September 23rd, 2011|Global Market Update|

Are we headed for another recession? That’s what the markets seem to be saying. Global stock markets are down over 20% from their highs in July, and global bond markets yield almost nothing. If you don’t like 10-year US Treasuries at 1.76%, you could try German bonds at 1.69%. Some fundamental data are troubling as well: Chinese manufacturing appears to have contracted for two months in a row, now; US employment growth seems to have stalled out. Most significantly, there are concerns that the [...]

Silver Linings

By | 2014-09-05T21:02:11+00:00 September 22nd, 2011|Uncategorized|

Does every cloud have a silver lining? We’d like to hope so. We’d like to hope that bad experiences can build strength of character or push us to make needed decisions so that in the end we’re better off. Is that what the global stock markets are facing? First, the bad news: the Fed botched its two-day meeting, and came up with a confusing, contradictory statement that satisfied no one and resulted in a global equity rout. Inflation hawks don’t like the time-focused low-rate [...]

Reruns?

By | 2014-09-12T09:48:23+00:00 September 21st, 2011|Uncategorized|

We’ve seen this movie before. Europe moves towards greater unity. Economic tensions develop. Speculators challenge the weaker countries. Markets are volatile. The call goes out for the strong countries to support the weak. The Germans resist, a crisis ensues, and eventually, a new structure is enacted. The year is 1998; the structure is the ERM, or exchange-rate-mechanism. European currencies traded within narrow bands, supported by their central banks. Inevitably traders would test support for the “soft” currencies like the Lira or Drachma, and the [...]

Silver Linings

By | 2014-09-12T10:41:32+00:00 September 20th, 2011|Economics, Global Market Update|

Does every cloud have a silver lining? We’d like to hope so. We’d like to hope that bad experiences can build strength of character or push us to make needed decisions so that in the end we’re better off. Is that what the global stock markets are facing? […]

Palliative Care

By | 2017-07-17T12:35:00+00:00 September 19th, 2011|Global Market Update|

“Do you want to fix things or just feel better?” This question was recently put to me by a doctor. But I was thinking about the same issue when it comes to the economy. It’s frequently asserted that if we extend unemployment insurance, the people on unemployment are likely to spend the money rather than save it because they need the funds for basic necessities. The idea is that if you spend ¾ of any money you get, and the next person spends ¾, [...]