PIMCO Slams The Brakes On US, UK, And Corporate Bond Buying, Amid Massive Debt Binge
by ilene - January 4th, 2010 1:26 pm
PIMCO Slams The Brakes On US, UK, And Corporate Bond Buying, Amid Massive Debt Binge
Courtesy of Joe Weisenthal at Clusterstock/Business Insider
In a new 2010 outlook, via Bloomberg, PIMCO’s Paul A. McCulley reveals his firm’s uber-cautious stance towards bonds, amid the massive borrowing underway in the UK and the US.
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PIMCO Managing Director Paul McCulley leads the firm’s quarterly Cyclical Economic Forums, in which investment professionals from around the world gather to discuss the outlook for the global economy and financial markets over the next six to 12 months. In the following interview, Mr. McCulley discusses the results of the December Forum and its implications for PIMCO’s investment strategy in 2010.
Q: PIMCO recently developed its outlook for 2010. What are the general conclusions?
McCulley: The global economic recovery underway will likely be very much de-synchronized, borne of heterogeneous initial conditions on display prior to the recession, with a full range of possible outcomes. In the developed world, we had double bubbles in property and credit creation. Much of the developing world, in contrast, had already gone through its “baptism by fire” a decade ago and actually had incredibly sound balance sheets in the public and private sector as a starting point.
In addition to these differing initial conditions, there is still uncertainty over three major issues, which in turn creates a range of possible outcomes in our forecast. Depending on how these issues progress, we’re looking at multiple potential resolutions of the inherent tension in the overall system. There will likely be some bipolar market outcomes.
Q: Can you talk more about those three major issues?
McCulley: The first issue is the peg between the Chinese yuan and the U.S. dollar, which essentially gives us a one-size-fits-all monetary policy in a very differentiated world. Progress, or lack of progress, on this issue could lead to several outcomes. If China were to let its currency appreciate, it could regain a degree of monetary policy autonomy and a better ability to manage the risk of overheating and asset price inflation. Another outcome, however, is that China refuses to let the yuan appreciate, essentially maintaining too easy of a monetary policy for itself and the developing countries that shadow Chinese policies. This would create bubble risk, particularly for assets such as…
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DiggThe Elements of Deflation
by ilene - September 5th, 2009 12:20 pm
The Elements of Deflation
Courtesy of John Mauldin at Thoughts From The Frontline
The Elements of Deflation
The Failure of Economics
The Super Trend Puzzle
Final Demand and Income
Unemployment Was NOT a Green Shoot
As every school child knows, water is formed by the two elements of hydrogen and oxygen in a very simple formula we all know as H2O. Today we start a series that starts with the question, What are the elements that comprise deflation? Far from being simple, the "equation" for deflation is as complex as that of DNA. And sadly, while the genome project has helped us with great insights into how DNA works, economic analysis is still back in the 1950s when it comes to decoding deflation. Notwithstanding the paucity of understanding we can glean from the dismal science, in this week’s letter we will start thinking about the most fundamentally important question of the day: is inflation, or deflation, in our future?
But quickly, I want to thank the many people who wrote very kind words about last week’s letter. Many thought it was one of the better letters I have done in a long time. If you did not read it, you can read it here. And of course, you can go there and sign up to get this letter sent to you each week for free. Why not become of my 1 million (plus and growing) closest friends?
The Failure of Economics
Among the economists and writers I regularly read, there are some who, if they agree with me, I go back and check my assumptions – I must have been wrong. Paul Krugman is one of those thinkers. I admit to his brilliance, but his left-leaning philosophy does not particularly square with mine, and I find that most of the time I disagree.
That being said, I strongly encourage you to read his essay in the New York Times Magazine, which comes out this weekend. It is worth the high price of the Times to read it, if you can’t get it online. It is a very hard critique and analysis of the failure of current macro and financial economic thought, which didn’t even come close to predicting the current financial malaise. Indeed, as he points out, most schools of thought said the state we…
Krugman, 2002
by ilene - June 16th, 2009 4:56 pm
Krugman, 2002: "Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."
Tom, at Applying the Lessons of Free Market Economics:
I check in with Stefan Karlsson’s blog once in a while. He is a young economist working in Sweden. Anyway, he put me onto this amazing Krugman column from 2002.
Has anybody ever made Keynesian thinking more transparent? And does anybody still think Krugman’s current prescriptions will be effective? More importantly, perhaps, does anybody still think the bubble was inadvertent? In How the Government Caused the Crisis I argued that the housing bubble was a deliberate Fed creation to achieve a particular political goal. To my mind, this Krugman column adds to the evidence. If Krugman could think like this, so could Bush Administration operatives — and we know that Greenspan was never anything but a tool in their hands.
Krugman and McCulley, Déjà Vu All Over Again
Courtesy of Mish
Paul Krugman says Stay the Course.
The debate over economic policy has taken a predictable yet ominous turn: the crisis seems to be easing, and a chorus of critics is already demanding that the Federal Reserve and the Obama administration abandon their rescue efforts. For those who know their history, it’s déjà vu all over again – literally.
In previous liquidity-trap episodes, policy makers gave in to these pressures far too soon, plunging the economy back into crisis. And if the critics have their way, we’ll do the same thing this time.
A few months ago the U.S. economy was in danger of falling into depression. Aggressive monetary policy and deficit spending have, for the time being, averted that danger. And suddenly critics are demanding that we call the whole thing off, and revert to business as usual.
Those demands should be ignored. It’s much too soon to give up on policies that have, at most, pulled us a few inches back from the edge of the abyss.
Flashback August 2, 2002
With thanks to "CS" for sending me the link, inquiring minds are investigating what Krugman was thinking on August 2, 2002.
Please consider Dubya’s Double Dip?
A few months ago the vast majority of business economists mocked concerns about a "double dip," a second leg to the downturn. But there were a few dogged iconoclasts out
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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