This is a list of some of the references I follow;
The point of following these sources of information is to get further information to support my contention/conviction that what we have experienced is just the start, NOT the end, of such crises, and, as such, should be treated as an opportunity to reassess our outlook based on the now obvious reality -- that the housing market has not bottomed yet and won’t anytime soon; that the mess in sub-prime is NOT contained; that availability of credit cannot increase indefinitely; that credit has been THE driving force behind market outcomes; that credit is NOT going to be nearly as available as it has been; that leverage begets further leverage on the upside, but on the downside leads to de-levering, into a vicious circle; that U.S. consumption (over 70% of US GDP and 30% of world GDP) would be forced to recede when MEW disappeared, the wealth effect turned around, billions of mortgages reset at much higher levels, and the reality of insufficient income growth to support consumption growth became obvious, and households would be forced to rebuild their personal balance sheets; and that episodes of such extremes do not unwind quickly nor gracefully.
To treat the recent stock sell-off as a buying opportunity would be to ignore all these fundamentals. So far, what the markets have experienced is a financial event and a liquidity event. Markets have not yet come to appreciate the weak underlying economic fundamentals, nor the extent of insolvency in the system. The markets may rally in the short-term from here, in particular when the Fed first eases, but the Fed will be impotent as it will, as per D.R., be pushing on a string, the fundamentals will become more obvious over time even to the most rosy-eyed commentators on CNBC, and markets will resume a nastier sell-off (bonds rally).
In any case, what the recent turmoil HAS done is resolve the one question that I could never accurately predict --- i.e. when exactly the markets would be forced to acknowledge the brewing credit crisis. (even if they’re now trying again to dismiss it) (I thought it wouldn’t be until they first acknowledged recession risks – ie a hard landing would force people to acknowledge the unsustainability of the debt buildup)
In any case, I don’t want you to take MY word for it. In the past, I have forwarded some material that I thought was crucial to understanding the mess the U.S. economy is in and to assessing likely outcomes (these have included Paul Kasriel on U.S. labour market and predictors of U.S. recessions; Contrary Investors’ Monthly Observations on the unsustainable build-up of debt in the system; UBS’ George Magnus’ research on Hyman Minsky’s predictions for the resolution of credit excesses; Bank of International Settlements’ warnings on similar; as well as my own research on payrolls and debt).
I would now like to broaden my recommended reading list. All along, my views have been motivated not just by my understanding of the raw data, but also by reading a wide variety of non-mainstream commentaries (the only mainstream economist I’ve read that I believe has been saying the right things has been Rosenberg):
Economists on economy:
- Paul Kasriel, Northern Trust economist (limited free access on NT website, but full access to his research pieces (with a lag) at http://www.safehaven.com/archive-142.htm) (there are other insightful pieces at safehaven as well, but unfortunately you have to sift through a lot of extreme crap)
- Nouriel Roubini, Professor of Economics at New York University's Stern School of Business, Chairman of RGE Monitor (free but not full access to his writings at his blog, http://www.rgemonitor.com/blog/roubini/ , can sign up for full RGE access)
Manager on stock market:
- Johh Hussman, PhD, formerly econ prof, now fund manager, (weekly commentary on state of stock market, especially, and bond market a bit as well, at http://www.hussman.net/weeklyMarketComment.html and more research at http://www.hussman.net/researchInsight.html) (in particular, read about his theory/condition of OVOBOBY – over-valued, over-bought, over-bullish, yields rising; as well as his criticism of the Fed model)
Daily insights (blog):
- Calculated Risk blog (http://calculatedrisk.blogspot.com/ ) for coverage of daily economic news, with special focus on housing
- Barry Ritholtz, manager (daily blog http://bigpicture.typepad.com/ )
- Minyanville (http://www.minyanville.com/ )
- Tim Iacono’s blog (http://themessthatgreenspanmade.blogspot.com/ )
- Michael Nystrom’s blog Bull, Not Bull (http://www.bullnotbull.com/bull/ )
More viewpoints from managers:
- John Mauldin, manager, and guests (writes his own weekly commentary, Thoughts from the Frontline, plus has a weekly guest commentary, Outside the Box, both available via email through free registration, plus available online at http://www.investorsinsight.com/ )
- Contrary Investor Monthly Observations (which I forwarded in PDF earlier; http://www.contraryinvestor.com/mo.htm)
- Comstock Funds’ weekly commentary http://www.comstockfunds.com/index.cfm/MenuItemID/185.htm
- Wilfred Hahn, Hahn Investment Partners: (most available here: http://www.hahninvest.com/global_spin.php, but more here: http://www.safehaven.com/archive-179.htm )
- Eric Sprott monthly Markets At A Glance article (http://www.sprott.com/marketoutlook/marketsataglance.php )
- Bill Fleckenstein’s Contrarian Chronicles (he has a subscription site, but his abridged views are available weekly for free at http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/ContrarianTodayButTomorrowWhoKnows.aspx )
- Priur de Plessis (http://investmentpostcards.wordpress.com/ )
And, finally, probably the most bearish/extreme of the bunch, but with lots of documentation to support his views:
- Mike Shedlock aka mish (http://globaleconomicanalysis.blogspot.com/)
If you want to start with just a few, I’d recommend reading everything you can by Kasriel, Roubini and Mish (and perhaps calculated risk)
Others to listen to, not via online blogs, but in their Bloomberg interviews, etc., would include:
- Gary Shilling
- Warren Buffett
- Dr. Robert Shiller
- Jeremy Grantham
- Marc Faber
- Dennis Gartman
- Jim Rogers
- Bob Prechter (you don’t have to believe in his Elliot Wave Theory hocus pocus to agree with his insights on the fundamental backdrop to the economy/markets)
- Dick Bove (e.g. see Aug 20 interview on BBTV)
- David M. Walker, the Comptroller General of the United States and head of the U.S. Government Accountability Office
- Andy Xie (formerly of MS, but walked away when he was criticized for being too outspoken)
- Stephen Roach (since he moved to head up MS’ Asia unit, his semi-weekly commentaries are no longer available, but
The above authors have been unanimous in their below consensus views on the U.S. economy (none are perennial bears (except for maybe Roach); they’re realists that have gotten bearish due to their interpretations of the fundamentals) but their predictions for outcomes (both the economy and markets), while unanimously cautious/defensive/negative, have gone to varying extremes, from relatively short-lived (harder landing than consensus, but recession not definitive; global economy will decouple from U.S.; stocks sell off temporarily but then resume upward course) to very nasty (long bear market; recession for sure, deflationary depression likely as well; global)
My understanding of the economic data and my understanding of the above authors’ writings has led me to conclude that:
- the U.S. economy will soon be in recession, if it is not already (not withstanding Q2 revisions to 4%+ GDP)
- the U.S. economy is now experiencing a Minsky Moment, which will have far-reaching and long-lasting impacts as all the leverage that has built up gets unwound, in each of the financial, household, corporate and, over a much longer timeframe, even government sectors
- corporate profitability and low default/bankruptcy rates have been sustained by access to cheap credit, which will be a thing of the past (even when the Fed cuts, as having a pulse won’t be enough to be approved, and spreads will be higher), and mean reversion will set in
- the global economy may appear to “decouple” for a time, but it will become apparent with a lag that what has driven global economic growth has been furnishing the U.S. consumer with all its possible needs/wants/desires, and a consumer-led U.S. recession will ultimately drag global economy down too, albeit with a lag
- the bull stock market is over; the bear market will not be measured in months but years
- U.S. treasuries and the USD will initially benefit from a flight to “quality”, but a renewed focus on at least the twin deficits and a likely new appreciation of the miserable state of U.S. government finances (see Walker at GAO) could put that bond rally at risk, especially if foreign buyers of USD start trying to get out before their counterparts, causing a snowball effect
- a deflationary depression is a distinct possibility that we should be considering as a potential outcome (this is more like Japan 16 years ago than people are willing to admit)
M
p.s. Once upon a time, not so long ago, these views were considered extreme, if not ridiculous:
- there was a bubble in housing (Jun06)
- housing would enter a long recession (Sep06)
- there would be a related financial crisis, a la S&L (Sep06)
- housing was not bottoming anytime soon (Oct06/Jan07)
- subprime mess would not be contained (Feb07)
- there would be a credit crunch (Apr07)
- all of these would negatively impact consumers, with impacts first obvious in housing and autos, but expanding broadly from there
All of these once-Chicken Little-theories are precursors to the yet-proven predictions above. It doesn’t mean the worst of my predictions is a sure thing, by any means, but I hope it means that they’re worth considering at least as seriously as the views of those who, motivated by Malpass, Kudlow, Wesbury and the other optimists, continue to be blasé about the downside risks --- and means the burden of proof should be at least as much on the optimists as the pessimists.
p.p.s. at D.R.’s suggestion, I’m now reading Charles Kindlebergh’s book “Manias, Panics and Crashes” – I’m sure it’ll be instructive
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