The Ultimate Krugman Take-Down

Tuesday, July 10th, 2012

Forget Ali – Frazier; ignore Santelli – Liesman; dismiss Yankees – Red Sox; never mind Silva – Sonnen; the new undisputed standard by which all showdowns will be judged happened in Spain over the weekend. During a debate on Europe’s crisis, Pedro Schwartz (a mild-mannered Spanish ‘Austrian’ economics professor) took on the heavyweight Paul ‘I coulda been a Fed Chair contender’ Krugman, and – in our humble opinion – wiped the floor with his Keynesian philosophy. From the medicinal use of more debt to fix too much debt, to the Japanization of world economies and the demand-side bias of every- and any-thing – interested only in the short-term economic growth; the gentlemanly Spaniard notes, with regard to the European crisis, the fact that “Keynesians got us into this mess and now we have to sacrifice our principals so that they can get us out of this mess”. Humble and generous in his praise – though definitively serious with his criticism – Schwartz opines: “Often Nobel prize winners are tempted to pontificate on matters that are outside the specialty in which they have excelled,” noting “the mantle of authority whereby what ever they say – whether sensible or not – is accepted with resignation from some and enthusiasm by others.” Krugman’s red-faced anger is evident at the conclusion as he even refused to shake Schwartz’s hand after the debate.

For 15 minutes of both education and entertainment – this is as good as it gets…

• Starting from around 35:00 the Spanish professor praises and criticizes in a thoughtful and gentle tone
• At around 39:00, he addresses the demand-side description of the world
• Krugman’s less-than-happy response (which sparks quite a rowdy argument) begins around 48:20

(h/t Jean Luis Martin of the Truman Factor)

Tags: Austrian Economics, Bias, Contender, Economic Growth, Economics Professor, Frazier, Gentle Tone, Japanization, Keynesians, Krugman, Mantle, Nobel Prize Winners, Opines, Pedro Schwartz, Principals, Red Sox, Resignation, Spanish Professor, Truman, World Economies
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Cashin On Rumor Versus Reality

Wednesday, May 30th, 2012

The avuncular Art Cashin opines on the roller-coaster of unreality that has been the equity markets for the last few days as outcomes become increasingly binary and investors increasingly herded from one direction to another. His sage advice – as if spoken by the most-interesting-person-in-the-world – “Stay nimble”, my friends.

Via Art Cash of UBS,

Rumors Versus Reality With Rumors Resurgent At The Wire

Yesterday, there were rumors about that Chinese authorities were working on a new stimulus package. That cheered Asian markets and allowed European bourses to tiptoe around a deteriorating situation in Spanish banks.

Even before the U.S. markets opened, the semi-official Xinhua news agency of China began pooh-poohing the rumors. The rumormongers would have none of the denials.

A package would be announced after the markets closed (presumably in Europe – circa 11:30).

That backdrop allowed U.S. stocks to open better in a rather sharp, sigh of relief, oversold rebound.

They even shrugged off some lousy consumer confidence numbers at 10:00. Since the confidence data sharply countered Friday’s University of Michigan numbers, traders deemed them likely inconclusive.

The rebound rally held into the European close.

The rumors apparently morphed again. Simon Hobbs on CNBC said his sources suggested some announcement might come after the European close. The sense seemed to be that it would emanate out of Europe – not China.

After the 11:30 European close, U.S. stocks began to fade and rather rapidly at that.

The Euro fell through a trapdoor.

Was it just disappointment at no announcement? It looked a little too sudden and sharp for that.

Attention shifted to the cut in Spain’s rating by Egan-Jones. The timing was certainly coincidental, but did the somewhat small agency have that much clout?

Also contemporaneous with the Euro drop were analyses of an odd switch in a weekly ECB report.

There was a decline of over 25 billion Euros in collateral posted on the most recent LTRO. In another part of the ledger there was an increase of over 34 billion Euros in “other claims” (frequently smoke for emergency loans).

That raised speculation that the ECB may have “called” a loan, as the value of the posted collateral deteriorated. The bank, perhaps, could not find valid replacement collateral and shifted to emergency loan status.

While that seemed rather technical, if true, it raised fears that the banking situation in Spain, and elsewhere could even be worse than we knew.

The Euro-led selloff petered out around 1:30 EDT after cutting the morning gains in half.

As the day wore on, the China stimulus story began to resurface. That led to a bit of a flurry in the final half hour. Also, helping were media reports that election polls in Greece were shifting toward Euro-safe sentiments.

Overnight – EU Proposal Starts Roller-Coaster Ride – Pre-dawn this morning the situation in the Spanish banking community took several sharp turns.

The FT had reported that the ECB had vetoed the Bank of Spain’s plan to recapitalize its banks, particularly Bankia.

The Euro fell to a two year low before the ECB tweeted that there was no veto. European markets stabilized.

Then, the other shoe dropped.

Around 7:00 EDT, the EU commission issued a surprise plan to channel aid directly into European banks rather than through the treasury of their sovereign.

The announcement caught the European markets off-guard and sharp spike rallies erupted, erasing all, or most, of the earlier selloffs.

Then the doubts began to pop up. Would this clear the Merkel wing? Could it be set up within existing treaties?

The doubts stopped the rallies and prices faded but failed to go into freefall. That’s why I keep stressing staying nimble.

Tags: Art Cashin, Asian Markets, Chinese Authorities, Cnbc, Confidence Data, Confidence Numbers, Consumer Confidence, Denials, Egan Jones, European Bourses, Opines, Roller Coaster, S University, Sage Advice, Semi Official, Spanish Banks, Stimulus Package, Trapdoor, Unreality, Xinhua News Agency
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PIMCO’s Bill Gross Opines on the Bond Market Moves, QE, Inflation, Et Al

Monday, March 19th, 2012

PIMCO’s Bill Gross joined Dan Gross on Yahoo Tech Ticker to discuss a host of bond related and economic views.  Much like myself, he sees another round of QE (sterlized or otherwise) – in fact he takes it another step further and says there is a good chance of QE4 as well.

Another round (or two) of quantitative easing from the Federal  Reserve, muted growth and an end to the 30-year bull run in government  bonds. That’s what Bill Gross,  one of the largest bond investors in the world, sees for the U.S.  economy in the coming year.

Despite  the Fed’s communiqué earlier this week, Gross doesn’t believe the  central bank’s interventions in the bond markets are over. In two rounds  of quantitative easing (QE), the Federal Reserve printed money to buy  hundreds of billions of dollars of Treasury bonds and mortgage-backed  securities. “I believe there will be a QE3, and perhaps a QE4,” he said.  Why? In the past few years, whenever central banks have stopped or  paused their quantitative easing efforts, “stock prices have fallen and  economies have slowed.” The globe’s private economies simply aren’t  sufficiently strong enough to support robust growth, and the world’s  central banks aren’t willing to stand by and watch. “That’s not a policy  recommendation, it’s simply a realization that the substitution of  central bank monetary purchases will continue for a long time, as long  as they [central banks] try to support private economies on a global  basis,” Gross said.

Still, Gross  believes the 30-year long bull run for bonds may be coming to an end.  “We’re certainly close and have been close for a number of months,” he  said. It’s very difficult to imagine interest rates going lower. “The  bond market, whether it’s Treasuries, mortgages, or investment-grade  bonds in combination, basically yield a little higher than 2%,” Gross  said. “And unless the U.S. economy replicates Japan, where yields are  down to 1% on average, then you’d have to say that we’re close to the  bottom in terms of yield.” He adds: “It doesn’t mean the beginning of a  bear market, but it does suggest at least that the great bond bull  market since 1981 is probably over.”

Recent market activity in  some bonds certainly ratifies that view. In recent weeks, the yield on  the 10-year Treasury has risen from about 1.8% in late January to about  2.28% on Thursday. But “those yields aren’t attractive,” Gross says.  Gross recommends that investors avoid longer-term bonds —  i.e. 10-year and 30-year bonds — whose prices may fall if long-term  growth and inflation expectations rise. However, they should also avoid  short-term bonds. “The Fed has conditionally guaranteed that they won’t  be raising interest rates until late 2014, and that’s almost three years  from now.” Gross believes that bonds that mature in five, six, or seven  years occupy the sweet spot in today’s market.

Bond holders tend  to fear strong growth because it has the potential to ignite inflation  and boost interest rates, thus reducing their returns. Gross says that  while the economy has improved, it shows no signs of overheating. He  believes the U.S. economy is growing at about a 2% annual rate in the  first quarter “and probably beyond.” That’s about as good as can be  hoped for. While the Federal Reserve has injected close to $1 trillion  into the U.S. economy in the past year, growth is in large measure tied  to what happens in the global economy. And the omens from abroad aren’t  particularly good. “China is slowing and the euro land is in recession,”  Gross said. The U.S. is growing at a decent clip, “what we call a new  normal, but it probably won’t get back to the 3 or 4% real growth  numbers that we witnessed over the past decades.”

Tags: Bill Gross, Bond Investors, Bond Market, Bond Markets, Central Banks, Consumer Price Index, Economic Views, Federal Reserve, Good Chance, Oil Prices, Opines, PIMCO, Principal Reasons, Qe, Qe3, Stock Prices, Term Bonds, Term Debt, Term Interest, Treasury Bonds
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Paul Kasriel: Waking up in Recovery

Tuesday, November 24th, 2009

We’ve made it to recovery, but it won’t be quick or easy, opines Paul Kasriel, award-winning chief economist of Northern Trust. In this video, he takes a fresh look at the economy, the headwinds we face, and future engines for global growth.

Click here or on the image below to view the video clip. (A link to the transcript is provided at the bottom of the post.)

Click her for the transcript of the interview.

Source: Northern Trust, November 2009.

Tags: Award Winning, Chief Economist, Economy, Fresh Look, Global Growth, Headwinds, Interview Source, Northern Trust, Opines, Paul Kasriel, Video Clip
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Greed and Stupidity – New York Times Op-Ed

Monday, April 6th, 2009

This weekend, David Brooks opines on the two narratives that have dominated media on the subject of how we got into this economic mess. Brooks discusses how both have played their respective roles, but gets down to another peculiar and interesting idea which explains some of the mindlessness:

To me, the most interesting factor is the way instant communications lead to unconscious conformity. You’d think that with thousands of ideas flowing at light speed around the world, you’d get a diversity of viewpoints and expectations that would balance one another out. Instead, global communications seem to have led people in the financial subculture to adopt homogenous viewpoints. They made the same one-way bets at the same time.

Its an idea that’s thought provoking, in the sense that it makes you wonder if, in fact, our thoughts are of our own making, or if we just believe they are.

Read the whole op-ed piece here or download it here.

David Brooks’s Op-Ed column in The New York Times started in September 2003. He has been a senior editor at The Weekly Standard, a contributing editor at Newsweek and the Atlantic Monthly, and he is currently a commentator on “The Newshour with Jim Lehrer.” He is the author of “Bobos In Paradise: The New Upper Class and How They Got There” and “On Paradise Drive : How We Live Now (And Always Have) in the Future Tense,” both published by Simon & Schuster.

Source: New York Times, NYTimes.com
David Brooks, Greed and Stupidity, April 3, 2009

Tags: Bobos In Paradise, Commentator, David Brooks, Economic Mess, Ed Column, Ed Piece, Global Communications, Instant Communications, Jim Lehrer, Light Speed, Mindlessness, Narratives, New York Times, New York Times Op Ed, Newshour With Jim Lehrer, Nytimes, Opines, Paradise Drive, Subculture, Viewpoints, Weekly Standard
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