Worthwhile Reading

Lost Decade Looming? Paul Krugman, NYT.

Despite a chorus of voices claiming otherwise, we aren’t Greece. We are, however, looking more and more like Japan.

Richard Russell says Major Crash likely. Bloomberg.
the article no longer contains it, but Russell was quoted as saying:

"Do your friends a favor. Tell them to “batten down the hatches” because there’s a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don’t need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won’t recognize the country. They’ll retort, “How the dickens does Russell know — who told him?” Tell them the stock market told him."

Seth Klarman, another industry icon, also sees poor outlook for stocks. Reuters.

"Given the recent run-up, I'd be worried that we'll have another 10 years of zero returns"... "I'm more worried about the world broadly than I've ever been in my whole career," Klarman said.

Another crash warning comes from Jeremy Grantham, who "guarantees" gold will crash. Advisor Perspectives.

What makes Grantham so certain gold will crash? Because he just bought some!! In fact, he just bought some despite saying:

“I hate gold. It does not pay a dividend, it has no value, and you can’t work out what it should or shouldn’t be worth,” he said. “It is the last refuge of the desperate.”

That may speak volumes about what he thinks about other asset classes if he's buying gold. So though his gold-crash guarantee was tongue-in-cheek, his forecast for U.S. large-cap stocks is not:

Long-term PE ratios have averaged 14 and they are currently 22.7. Grantham expects them to go to 15, and that translates to a 5.7% reduction in projected return. Similarly, profit margins have averaged 4.5%. They are currently 5.8% and Grantham generously expects them to increase to 6%, giving rise to a 0.4% increase in total return. Sales growth per share has been 1.8% and is now 1.9%; he expects it to increase to 3.6%, contributing 3.8% to total return. Including the dividend yield of 2.3% produces a total return of 0.3%.

I haven't heard of the following guy before, and don't buy into some of the historical comparisons he makes, but, for what its worth, here's another recent crash call:

Global Macro's Raoul Pal: Here's Why A Crash Is Coming In Two Days-To-Two Weeks. Business Insider.

From market crashes to the economic collapse:
Why the 'Experts' Failed to See How Financial Fraud Collapsed the Economy. James K. Galbraith, Alternet.

Some appear to believe that "confidence in the banks" can be rebuilt by a new round of good economic news, by rising stock prices, by the reassurances of high officials – and by not looking too closely at the underlying evidence of fraud, abuse, deception and deceit. As you pursue your investigations, you will undermine, and I believe you may destroy, that illusion.

But you have to act. The true alternative is a failure extending over time from the economic to the political system. Just as too few predicted the financial crisis, it may be that too few are today speaking frankly about where a failure to deal with the aftermath may lead.In this situation, let me suggest, the country faces an existential threat. Either the legal system must do its work. Or the market system cannot be restored. There must be a thorough, transparent, effective, radical cleaning of the financial sector and also of those public officials who failed the public trust. The financiers must be made to feel, in their bones, the power of the law. And the public, which lives by the law, must see very clearly and unambiguously that this is the case.

On the lighter side:
How did the economy go bad? The Onion.

and this one's for DQ & Jackie:
The Federal Reserve has been abusing derivatives since 1999. Market Skeptics.
Yes, there is a PPT!!


and, finally, a little philosophy/science, with no market implications whatsoever:

From their paper, Unskilled and unaware of it, Cornell Univ scientists Dunning and Kruger:

"People tend to hold overly favorable views of their abilities in many social and intellectual domains. Overestimation occurs, in part, because people who are unskilled in these domains suffer a dual burden: Not only do these people reach erroneous conclusions and make unfortunate choices, but their incompetence robs
them of the metacognitive ability to realize it."

Or, as Charles Darwin once said: "Ignorance more frequently begets confidence than knowledge"