Thought-Provoking Articles

This post provides links to a number of thought-provoking articles I have read over the past few days that you may also find of interest.

• Evans-Pritchard (Telegraph): German “wise men” fear credit crunch in 2010, October 15, 2009.
  Germany’s leading institutes have warned that the pace of economic recovery is “unsustainable” and that the country’s banks may face a fresh crisis over the next year as bad debts surface in earnest.

• Lasse Heje Pedersen (NYU Stern School of Business): When everyone runs for the exit, August 2009.

The dangers of shouting “fire” in a crowded theater are well understood, but the dangers of rushing to the exit in the financial markets are more complex. Yet, the two events share several features …

• Anthony Bolton (Financial Times): Are developed or emerging markets the future of investing? October 16, 2009.
  In an attempt to dig us out of the financial crisis, the governments of many developed economies have mortgaged their futures. Their unprecedented fiscal stimulus has significantly increased the ratio of public debt to national income. Consequently, the growth rate to which these developed economies will return - once the short-term recovery phase is over - will be lower than in the past. This has important asset allocation implications for investors in developed market equities.

• Zachary Karabell (The Wall Street Journal): Deficits and the Chinese challenge, October 12, 2009.

China thrives because it is hungry, dynamic, scared of failure and convinced that it should be a leading force in the world. That is why America thrived a century ago. Today, such hunger and dynamism seem less evident in American life than petulance that the world is not cooperating. The U.S. is in danger of assuming that because it has been a dominant nation on the world stage, it must continue to be so. That is a recipe for becoming Britain.

• Floyd Norris (The New York Times): A weak dollar? Not so much in China, October 15, 2009.
  Where it really counts, the dollar is not moving at all. In February, the dollar hit a high against most currencies amid fears of worldwide recession and a desire for the safety of American investments. It was then worth 80 euro cents, and 6.82 Chinese renminbi. This week, as the dollar neared 67 euro cents, it was still worth 6.82 renminbi.

• Chris Giles (Financial Times): FT interview: Paul Fisher, October 14, 2009.

This article is an edited transcript of an interview with Paul Fisher, executive director for markets at the Bank of England, conducted by Chris Giles, economics editor of the Financial Times.

• Svenja O’Donnel (Bloomberg): Goldman’s O’Neill says crisis fiscal costs are exaggerated, October 12, 2009.
  The global cost to taxpayers from the financial crisis is often exaggerated, Goldman Sachs Group Inc. chief economist Jim O’Neill said. “The fiscal costs of this crisis around the world, including the UK, in my judgment are not as severe as people keep talking about,” he said.

• Randall Forsyth (Barron’s): Yield hogs out-stampede stock bulls, October 16, 2009.

Rush into bond funds suggest rising risks as investors flee near-zero-rate cash.

• Randall Forsyth (Barron’s): Dow 10,000: Déjà vu all over again, October 15, 2009.

The stock market surely is entitled to celebrate rallying more than 50% off its March lows and regaining the levels of a year ago. So, cheers and bottoms up! But from a longer-term perspective, investors have more headaches than highs. Not only is the Dow still well below its peak of 14,000 touched in mid-2007, just as the credit crisis began to erupt, the blue-chip average is now only back to where it stood back when we were partying like it was 1999.

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