Interview With My Favorite Economist

Luigi Zingales of the University of Chicago, co-wrote Saving Capitalism from the Capitalists in 2004, a book hailed as “one of the most powerful defenses of the free market ever written.” Remarkably, it has been praised by those on both the left and the right of the political spectrum as it cuts through the usual entrenched positions, and documents the fragile balance between the market infrastructure needed for economic prosperity and stagnation at the hands of government.

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Does It Matter Who Wins This Year’s Presidential Election?

Have you had enough of the presidential election coverage yet? Don’t worry – just eight more months of it!


Investment advisor John Mauldin makes the interesting case in his most recent e-letter, that presidential elections aren’t as consequential as we think – to a point. He notes that economic events such as recessions, credit bubbles, and costly tragedies such as 9/11 and Katrina would have occurred regardless of who occupied the White House.
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S&P 500 Slump Worst Since 1970s Despite Record Corporate Profits

Looks like the lost decade isn’t going away any time soon …

From Bloomberg:



Valuations for U.S. equities have been stuck below the five-decade average for the longest period since Richard Nixon’s presidency, a sign investors don’t trust earnings even after a three-year bull market.
Analysts estimate profits in the Standard & Poor’s 500 Index will reach a record $104.78 this year after increasing 125 percent since the end of 2009, the fastest expansion in a quarter century, according to data compiled by Bloomberg. American companies are boosting income so much that even after stocks doubled, the S&P 500 hasn’t traded above its 16.4 mean ratio for 446 days, the longest stretch since the 13 years beginning in 1973.


Battered by the 14 percent decline in the S&P 500 since 2000, the worst financial crisis since the Great Depression and the so-called flash crash 21 months ago, investors are staying away from stocks, even after record profits, 10 quarters of U.S. economic growth and promises by the Federal Reserve to keep interest rates near zero through 2014. Of the $37 trillion erased from global equities in the credit crisis, $24 trillion has been restored.  Read More

Bill Gross Blasts Interest Rate Policy for Killing Economic ‘Abundance’

From Bloomberg:


Bill Gross said the zero-bound interest rate policies embraced by central banks including the Federal Reserve may end up killing as opposed to creating credit and developed economies may suffer accordingly.


While recent actions by policy makers provide assurances that short and intermediate U.S. bond yields may not change for years, any potential for price appreciation is limited, Gross, who runs the world’s biggest bond fund, wrote today in a monthly investment outlook released on Newport Beach, California-based Pacific Investment Management Co.’s website.


“Monetary and fiscal excesses carry with them explicit costs,” Gross wrote. “My intent really is to alert you, the reader, to the significant costs that may be ahead for a global economy and financial marketplace still functioning under the assumption that cheap and abundant central bank credit is always a positive dynamic.”


The Fed purchased $2.3 trillion of debt in two rounds of quantitative easing known as QE1 and QE2 as part of its efforts to support the world’s biggest economy. Policy makers last month said they plan to keep their benchmark interest rate near zero until at least the end of 2014. Fed Chairman Ben S. Bernanke said following the central bank’s Jan. 25 meeting that he’s considering another program of debt purchases if it appears the recovery isn’t progressing.


‘Death of Abundance’


Zero-bound interest rates don’t always force investors to take more risk by purchasing stocks or real estate, Gross said. When investors are more concerned about the return of, rather than returns on, their money, the liquidity being provided by central bankers can instead be “trapped” in a mattress, bank account or Treasury bills, he wrote.


“We are witnessing the death of abundance and the borning of austerity, for what may be a long, long time,” Gross said.


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John Mauldin: Europe Should Keep the Free Trade, Deregulate the Currency – And Cut the Umbilical Cord To Greece

In your spare time, in between client meetings, no doubt you’re pondering how members of the European Economic Union can extract themselves from their financial difficulties, which, at the moment, seem so much more perilous than our own economic worries, but also contain a foreboding of what might lie ahead.


In his weekly e-newsletter, Thoughts from the Frontline, investor John Mauldin offers a seemingly workable prescription for the Eurozone woes (right after he explains in detail the absolutely no-win nature of the debt crisis there).
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Will Gov’t Debt, Weak Growth Lead to Global Recession in 2012?

Hoisington Investment Management has released another quarterly economic forecast. And like, Gary Shilling earlier this month, they believe we’re headed for a bumpy road in 2012. Van Hoisington and Lacy Hunt, who co-wrote the report released this week, believe the stratospheric government debt will lead to lower economic growth, and that the European debt crisis will sharply curtail U.S. exports.  Read More