Thursday, January 28, 2010

Must Read Articles 04.10

Note: I'll hopefully get my final "Themes" piece out this weekend or early next week. Sorry for the delay. I've been inundated.

This week's must read articles

Taibbi assaults criticizing wall street populism meme (Yves, Naked Capitalism)

Indeed, this is getting to me too. Somehow the tables got turned on common sense. Now, anyone who criticizes Wall Street is simply labeled a "populist" thereby inferring a depart from rationality. Not all populism is wrong-headed.

The total debt relative to GDP trumps everything else (Comstock Funds)

Comstock picks up on many of my themes, primarily private sector debt deleveraging. They see a reduction in the amount of private debt from $40 Trillion to 20 or 30. I agree.

The economic case against Bernanke/ (Steve Keen)

Keen dismantles Bernanke's adherence to faulty interpretations of the causes behind the Great Depression. Irving Fisher lost nearly his entire net worth betting against the possibility of depression in the 30s. His reasoning was the same as Bernanke's is now. After some reflection, Fisher concluded that debt does matter, and that its growth led to an unnatural perception of stability. A stability that was later revealed to be a bubble, followed by a bust. Bernanke appears desperate to re-learn Fisher's lesson.

Update on residential investment (Calculated Risk)

Being one of the leading indicators for economic recovery, residential investment is obviously an area to keep an eye on. But even more important is the ramifications for major banks with trillions in mortgage assets on their books (and off). They are hoping for a recovery in home prices to make these bad loans whole again. The data does not support such a scenario. In fact, prices are again falling and subsidy infused activity is now drying up.

The debt monster may threaten governments more than corporations (Econblog Review)

EBR notes that the cost of insuring against default for many of our largest conglomerates has fallen below that of insuring against sovereign default.

With that, I would also note that sovereign CDS spreads for troubled countries in southern Europe are absolutely blowing out. Bond spreads are doing the same. Greece, Portugal and Spain are in the most trouble - in that order. This is a problem that doesn't appear to be going away. I doubt it comes to a head in the near term. They'll likely find a half-measure or two before the inevitable occurs.

Related to that are long-term issues with Japan. See the video below from Kyle Bass.

Ever wonder why there is never agreement on anything when it comes to economics or finance? You'll be happy to know this is nothing new. In fact, the same arguments have been going on for more than a century. I doubt it will ever be resolved, as people have different value structures toward stability, freedom, wants/needs, etc. The video below explains it well and in a very entertaining format. Enjoy!

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