Wednesday, January 20, 2010

Must Read Articles 03.10

Starting this week, I'll begin posting a brief list of what I consider to be the last 7 days' most important reads. For those that have been utilizing my "Recommended Articles" widget on the right-hand side of the page, you'll notice that I sometimes add notes to the end of articles I find to be particularly noteworthy. As I do read a copious amount of information on a daily basis (my Google Reader account tells me I go through more than 100 blog posts, newspaper articles and reports daily), I try to share only 10% of that in the sidebar. For most people, I can understand even that is excessive and too cumbersome to delve through daily. And to be honest, for most people with a more long-term focus, I don't see how reading more than a few articles per week would be very beneficial.

As such, I'll be pulling out just a few of the "Must Read" articles and posting a quick caption on their importance. I'll try to do this mid-week as it is warranted.

Must Read Articles of the past week:

A Contrarian View of China - Corriente Advisors (hat tip reader Roger)
Corriente gives an in-depth but easy to read presentation on the state of affairs in China. The consensus of China's situation (plenty of savings, solid growth, booming domestic market, etc) is incredibly one sided. And this report tears many of those misconceptions to shreds. As we know, the consensus is rarely right - especially on matters as opaque as China's debt and currency markets. I find their take compelling.

Debt and Deleveraging - McKinsey (ht Rolfe Winkler)
Lengthy and Exhaustive, a team of researchers has compiled a list of more than 40 historical examples of deleveraging across many countries since the Great Depression. As the title suggests, McKinsey believes our excessive debt levels will result in a prolonged period of deleveraging. But they go one step further and attempt to identify precisely which sectors within the various economies are most likely to undergo this process. They argue that among four primary ways to deleverage (austerity, inflation, default, and growth) we are most likely to take the most common among them - which is austerity. I think default is a higher probability than they're willing to admit. Well worth the read - if only for the intro (pp 9-17).

A Measurement of the Economy - Annaly Capital Management
Annaly challenges the wisdom of relying on GDP for an accounting of the nation's health. They prefer to look at "what the nation earns, rather than what it spends." I agree with this, as it cannot be exogenously influenced as easily. With this metric, they look at tax receipts and conclude that a recovery is unlikely until people start producing, and thus earning, more.
To us, a rebound in GDP only reflects a rebound in consumption, and today’s consumption is fueled to a large extent by growth in government spending, incentives and, most significantly, borrowing. A rebound in tax receipts, sans tax increases that stymie economic activity, would reflect growth in our country’s earning power.

Option-ARM Update - Calculated Risk
As the title suggests. A short recap of what's to come for recasting Option ARM mortgages - which in most instances were just as poorly underwritten as subprime mortgages.

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Anonymous said...

This is a great idea, Matt. Thanks.

mike.montchalin said...

I, for one, have valued your "recommended reading" list and your notes within.

This 'Must Read Articles 03.10;' is one more example of "posts I like to read."

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