interesting chart on PE ratios in market cycles
from Crestmont ResearchI don't agree with this weak analysis at all: A Japanese lecture for bond investors. Edward Chancellor, FT.
I don't disagree just as a matter of principle; rather, I find his arguments flimsy and unsound --- there are a number of points he makes I take issue with.
Japan is unique relative to other instances of banking crises; okay, sure, maybe so; but does this somehow imply that the U.S. is more likely to follow the path of the other examples rather than that of Japan; if so, why? in what ways are the US' similarities to those other experiences more compelling than to the Japanese situation? we don't know b/c he doesn't say
if deleveraging tails off, that will stimulate demand? sure; of course; but he seems to be implying that that is a fair accompli; really?
Japan suffered from a political imperative to avoid inflation; okay; doesn't the U.S. too continue to insist that low and stable inflation must be maintained? is there any more appetite apparent in the U.S. than in Japan to encourage high inflation to eat away at the debt burden? Ive seen no evidence of that, and he certainly doesn't provide any.
Japan's ability to raise prices was constrained by competition from China; this is said as if it differentiates the US experience from that of Japan; really? the U.S. doesn't face competition from China and other nations?
the banking system has been recapitalized? yes, of course, there were capital injections; but are they truly solvent? have not accounting rules been changed to avoid recognition of losses? is this really that different than the zombie bank situation in Japan? one of Japan's problems identified by Chancellor is the hiding of bad loans that happened there --- but not in the U.S.? really?
the demographic situation in the US is certainly not as difficult today as it is in Japan today, but is it really that much better today in the US than it was in Japan in the early 90s? is the baby-boomer situation not a problem in the US? really? baby boomers realizing that their nest eggs have been seriously compromised by a stock market down 50% from its peak and house prices still falling and now with low interest rates to boot, thats not a disinflationary force in the US?
the US WAS a spendthrift nation; is Chancellor saying that because it did spend beyond its means for most of the last 2 decades it must therefore continue to dissave going forward? really?
the credit impulse has turned positive? really? based on what evidence?
his question "how large is the output gap, really?" is really just the icing on the cake of this very weak piece; what a load of hooey!
Searching for yield. Morgan Stanley Interest Rate Research report, via zerohedge.
Albert Edwards, via zerohedge.
The current situation reminds me of mid 2007. Investors then were content to stick their heads into very deep sand and ignore the fact that The Great Unwind had clearly begun. But in August and September 2007, even though the wheels were clearly falling off the global economy, the S&P still managed to rally 15%! The recent reaction to data suggests the market is in a similar deluded state of mind. Yet again, equity investors refuse to accept they are now locked in a Vulcan death grip and are about to fall unconscious.
The slump goes on: why? Robin Wells and Paul Krugman, NYRB.
I was going to comment about the WSJ economic symposium piece What should the Federal Reserve do next?, commenting that the range of opinion sought is hardly a range (only 1 of the 6, Vincent Reinhart, advocates continued Fed stimulus; i.e. he's the only one who recognizes the current trend of disinflation, the large output gap and the continuing decline in inflation expectations). But I don't need to rant any further, as I found someone who has done so already, in What should the Fed do next? Niklas Blanchard, Modeled Behaviour.
On the value of Treasuries. Jake, EconompicData.
In recent weeks, a number of investors I respect have commented that Treasuries are rich and should be avoided (or even outright shorted). Recent examples include Doug Kass and James Montier, both of whom claim current yields put too much weight on expectations of a double dip. I simply don't agree...While I am not a Treasury bull, it is my view that at a 2.7% yield Treasury bonds are fairly valued when one takes into account the low growth / low inflation outlook, the Fed's extended easing policy, and the potential for capital appreciation rolling down the steep yield curve. Below we'll take a look at these three points in more detail....
a couple of short pieces from David Beckworth: In case you were wondering & What a mess.
It's a depression. Rosenberg, via The Big Picture.
Rome is burning. Karl Smith, Modeled Behaviour. nice rant, including:
There are machines waiting to be worked and people waiting to work them but they are not getting together. The labor market is failing to clear. This is a fucking disaster.... We have people who would be working but are instead watching Judge Judy.
2 anecdotal reminders that credit bubbles aren't just Anglo-Saxon affairs:
Empty flats spell trouble. Andy Xie, China International Business. and Hello from Sao Paolo. Planet Money, NPR.
Quantifying top 10 China risks. Morgan Stanley, via zerohedge.
Unfortunately, I can't disagree with Gonzalo Lira on this one: Why Paul Krugman is an imbecile -- or a fraud. As Lira says, I don't always agree with Krugman, but I have always found reading him worthwhile and have generally respected his views. But now, not so much.
Globalisation. Stephen King (HSBC), FiveBooks.
trailer: Inside Job. via youtube.
recent data:
Cdn jobs about as expected, US jobless claims better (though data questionable, given that 9 states didn't file), but the consumer credit contraction continues, there are more and more people on food stamps, and the Beige Book said there was "continued growth in national economic activity during the reporting period of mid-July through the end of August, but with widespread signs of a deceleration compared with preceding periods"
other fare:
bring on global warming: How Canada will become a superpower, making the Northern Rim the envy of the world. Laurence Smith, via io9.
I was wrong about veganism. Let them eat meat – but farm it properly. George Monbiot, Guardian.
this is what education is coming to??? A class to die for. NYT.
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