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Macro and Cheese  

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  • Bonds The Biggest Bubble: The Barbell Strategy [View article]
    Jeff you haven't told us why it's a bubble, and I would also be interested to hear how you explain Japan's 10-year bonds at 0.86%, below 2% for 14 years and counting.
    May 10, 2012. 02:48 PM | 3 Likes Like |Link to Comment
  • Do Panic Over Europe [View article]
    This is a serious issue and a global one. When social security was created, as I recall, life expectancy was about 3 years beyond retirement, on average. Now it's about 10 years longer. This is not a recipe for pension solvency.

    Over time many public sectors have slowly evolved into gaming the system. I have a good friend in NJ whose wife is a public school teacher. She's in her mid 50s and getting set to retire. Last year she got a roughly 8% raise, in the depths of this recession, because her pension will be determined by her salary during the last 3 years of service. Average teacher salaries don't go up much, but they backload the increase towards the end. And at 55 in good health she can expect to live another 30 years.

    This to me is no less serious than the other challenges we face. It all works fine when the population is growing rapidly, but when it slows down, look out. Goodness knows what happens when the population declines. And once the system is in place, it's nearly impossible to roll back. Wisconsin's governor Walker is the subject of a recall election primarily or exclusively because of his effort to do just that.
    May 10, 2012. 02:25 PM | Likes Like |Link to Comment
  • Bonds The Biggest Bubble: The Barbell Strategy [View article]
    Don't agree with this:

    --Japan's 10-year bond yields went below 2% for the first time in 1998. That's no bubble.

    --The US treasury curve is relatively flat and yet still works to cheapen the yield of bonds on a forward basis. If the Fed doesn't raise rate for 2 years--a conservative assumption--that adds 3% in coupon income that we can apply to the forward (8-yr) yield. That gets the yield of the remaining 8 years well above 2%. Only if the Fed raises rates quickly will that be a losing proposition.

    I don't see much value in bonds, but anyone looking for a bubble is going to have to wait a long time. If so, is it a bubble?
    May 10, 2012. 02:07 PM | Likes Like |Link to Comment
  • Do Panic Over Europe [View article]
    Thank you all for your comments and input. I have been meaning to chime in but this is turning out to be a busy day.

    As Arnold said, "I'll be back"
    May 10, 2012. 10:34 AM | Likes Like |Link to Comment
  • What A Hollande Victory Means For The Euro [View article]
    Rich I don't think the comparison goes very far. East Germany was a failed socialist state, much smaller than West and even then the cost was enormous. There was no crisis per se, Germany was doing well and got a cheap source of labor. And as you say, the cultural divide is much greater within the EC than it was in unified Germany. And unlike the Eurozone, Germany had one government, could control its own interest rates, and could (if it chose to) devalue its currency. None of that is the case in the EZ.
    May 8, 2012. 01:15 PM | 1 Like Like |Link to Comment
  • What A Hollande Victory Means For The Euro [View article]
    Yes indeed. The fatal flaw in the euro structure is that for an economy in distress the currency can get the country back to equilibrium. The currency devalues, and standards of living decline--but exports increase and job losses are buffered. It's a much softer landing. With the euro, Greece, Portugal, etc have no such option. Equilibrium has to come through deflation, wage losses, etc. It's much uglier, and the pain is much less evenly dispersed.
    May 8, 2012. 08:21 AM | 2 Likes Like |Link to Comment
  • Why The Markets Celebrated The Disruptive Elections [View article]
    Hmmm goodbye to austerity, hello government spending, now where have I heard that before?
    May 8, 2012. 04:37 AM | Likes Like |Link to Comment
  • ECRI Weekly Leading Indicator: 3rd Consecutive Decline [View article]
    I second that, it's always a pleasure to read your work, and your graphs are suitable for framing.
    May 7, 2012. 09:52 PM | 1 Like Like |Link to Comment
  • What A Hollande Victory Means For The Euro [View article]
    A hundred apples here, a hundred apples there, pretty soon you're talking about real fruit.
    May 7, 2012. 02:19 PM | Likes Like |Link to Comment
  • What A Hollande Victory Means For The Euro [View article]
    I agree with you that by and large government is a cost center, not a profit center. I do think there are exceptions and that government investment has its place, roads being the obvious example. But as Obama found, "shovel-ready" projects are far and few between. I'd like to see an acid test of some sort of profitability of government projects, though that's easier said than done.

    As for France we'll have to see how this plays out. Co-habitation has a way of morphing into something a lot less exciting than advertised, and Hollande has to deal with 16 Eurozone partners. He may go out with a whimper rather than a bang.
    May 7, 2012. 01:46 PM | 1 Like Like |Link to Comment
  • What A Hollande Victory Means For The Euro [View article]
    Here's the money quote:

    “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy.”
    ― Alexis de Tocqueville

    The question is: Are we all French now?
    May 7, 2012. 09:14 AM | 9 Likes Like |Link to Comment
  • What A Hollande Victory Means For The Euro [View article]
    Great point, I didn't know that. Hollande's platform is very similar to Mitterrand's, right down to a list of dozens of specific planks. Mitterrand tacked sharply towards austerity after two years, I am curious as to whether Hollande already has that in mind.
    May 7, 2012. 07:09 AM | 2 Likes Like |Link to Comment
  • Did LTRO Work, And Will There Be Another? [View article]
    Hollande is a spender so you could be right about the market reaction. But it's kicking the can down the road ultimately. It's funny, people are tired of austerity but it has only just begun. Same in the US. One thing to watch for: When Mitterrand won in 1981 on a platform very similar to Hollande's, the French franc proceeded to lose half its value against the dollar in just a few years.
    May 6, 2012. 10:24 AM | 1 Like Like |Link to Comment
  • Did LTRO Work, And Will There Be Another? [View article]
    I see your point, though the banks haven't delevered, they've substituted sovereign assets for corporate ones. But you're right, they're shifting their assets around. It's an extension of the trend we've been seeing. Governments are leveraging as the private sector deleverages.
    May 6, 2012. 10:22 AM | Likes Like |Link to Comment
  • The 'Shipments Are Not Sales' Defense [View article]
    Paolo is the 180 P/E compatible with current growth? In other words, if Amazon keeps doing what it's doing, would that multiple be justified?
    May 5, 2012. 05:36 PM | Likes Like |Link to Comment