Paul Legato

The Euro Exhibits Systemic Macro Weakness

In the New York Times yesterday: the Spanish are beginning to see deflation. If deflation takes hold, they will be the first to break the union. Their talk is already heading in that direction.

www.nytimes.com/2009/0...

Even if they don't actually break it, this is not a good sign for the Euro.

I certainly wouldn't touch gold - too manipulated. The USD suffers from weird problems as the reserve currency and the "flight to safety" factor - despite the massive money-printing, recall that Treasury yields were *negative* at the peak of the crisis, and still close to zero. I do not think a Euro tank necessarily implies a USD tank (though the USD might also tank for unrelated or not-directly-related reasons.)

Like I said, the other side of the trade is not clear. I don't know what will hold value well, but I am pretty sure the Euro is going to bleed it. I'd go with some kind of diversified commodity basket and maybe a few incredibly well-researched equities with amazingly solid fundamentals.

Cheers.

The Russian Bear Awakens: A Global Macro View

Hello all,

Thanks for sharing your thoughts.

I'd like to clarify one thing. It doesn't seem to be clear to some posters that I was not conducting a moral analysis of whether the Russian government and Putin's actions are good or bad; I was conducting an investment analysis of whether they will produce favorable investment conditions. This is not a political philosophy website, and a full exploration of the moral dimensions of the current Russian system would require many, many pages of work. While that may be worthwhile, it is beyond the scope of this article. The focus here is whether it is a good idea to invest money in Russia, not whether you personally like Putin or the Russian government.

For the benefit of all the jingoists who are still fighting the Cold War, and the Russian expatriates eager to demonstrate their devotion to their new homeland by publicly renouncing Russia, this view is not, and is not intended as, a threat to other countries, just as an observation about the economy of one country. I believe that Russia's economic success will only increase global economic activity for all, by providing new trading opportunities and researching new technologies that will benefit all.

While the Russian government is perhaps no less corrupt than before (and the article does not claim that it is), it is certainly far more stable than during the 1990s, and conditions now exist to allow profitable investment. I have tried to elucidate them. I would love to hear any comments on that topic.

Russia's long-term prospects indeed depend highly on how the current windfall from commodities is invested; specifically, on whether it is invested in modernizing infrastructure and expanding higher education. Putin has said he will do these things, and as of now, I believe him. I could be wrong; time will tell. If they do invest wisely in these kinds of improvements, the long-term prospects for the Russian economy are excellent.

Paul (neither a Communist nor a Pavel)