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Saturday, September 25, 2010
Taleb Says Unawareness of Deficit Risk Has Him `Extremely Bearish' on U.S.
Nassim Nicholas Taleb, author of “The Black Swan,” said he’s concerned budget deficits in the U.S. are spiraling out of control and may now represent a bigger problem than in countries such as Greece.
“The U.S. is probably the worst of all,” Taleb told Canada’s BNN television network in an interview today. “They are addicted to debt. We have an administration that, unlike the European administrations, is not aware of the risks of mounting deficits, of the addiction to public deficits and to big government.”
Taleb told the cable network, “People are complaining about Greece, but Greece has the IMF putting some discipline in their system. Who can discipline the U.S. government?”
Greece this year has imposed a series of austerity measures, including wage and pension cuts and higher sales taxes, in exchange for a 110 billion-euro ($148 billion) rescue from the European Union and International Monetary Fund. U.S. President Barack Obama inherited what the National Bureau of Economic Research said this week was the deepest U.S. recession since the Great Depression. The government’s outstanding debt is about $13.5 trillion, according to Treasury figures. (more)
Rosenberg: Seven Investment Strategies For a Deflationary Environment
INVESTMENT STRATEGY IN A DEFLATIONARY ENVIRONMENT
- Focus on safe yield: High-quality corporates (non-cyclical, high cash reserves, minimal refinancing needs). Corporate balance sheets are in very good shape.
- Equities: focus on reliable dividend growth/yield; preferred shares (“income” orientation). Starbucks just caught on to the importance of paying out a dividend.
- Whether it be credit or equities, focus on companies with low debt/equity ratios and high liquid asset ratios – balance sheet quality is even more important than usual. Avoid highly leveraged companies.
- Even hard assets that provide an income stream work well in a deflationary environment (ie, oil and gas royalties, REITs, etc…).
- Focus on sectors or companies with these micro characteristics: low fixed costs, high variable cost, high barriers to entry/some sort of oligopolistic features, a relatively high level of demand inelasticity (utilities, staples, health care — these sectors are also unloved and under owned by institutional portfolio managers).
- Alternative assets: allocate significant portion of asset mix to strategies that are not reliant on rising equity markets and where volatility can be used to advantage.
- Precious metals: A hedge against the reflationary policies aimed at defusing deflationary risks — money printing, rolling currency depreciations, heightened trade frictions, and government procurement policies.
Deutsche Bank Warns Of Big Treasury Overshoot, Sees 10-Year Yields Going To 1.5%
At least for now, Deutsche Bank is in the bond uber-bull camp:Our rate forecast of 2% in the 10Y Treasury yield by the end of the year continues to be our view after the Fed’s statement that it was “prepared to provide additional accommodation if needed”. Chiefly, our rate view is based on the fundamentals of the economy. But the possible announcement of QE2 in November creates the possibility of the market overshooting compared to our rate forecast, with 10Y yields moving substantially below 2%.
We think that low interest rates will persist for the next several years, establishing a new equilibrium. The lasting period of low rates is due primarily to the following 4 factors: (1) The continued weakness of household balance sheets, with households repairing their balance sheets by reducing their spending over the next several years, (2) The payments on underwater mortgages will dampen spending and boost savings — a paper from the New York Fed stated that the savings rate would have to rise 0.8 percentage points, (3) The stagnation of firms’ pricing power, thereby raising the possibility of deflation, and making job growth difficult, and (4) Low potential GDP growth, with the CBO estimation of 2.1-2.3%, owing to the secular reduction in capital spending during the crisis. Thus the markets will likely have to adjust to a new growth level that is lower than the business cycle averages in the last several decades.
Bloomberg Businessweek - September, 27 2010
* How Facebook sells you.* Technology. Youtube's $100K video stars.
* Etc. Oliver Stone's Wall Street Gurus.
* Politics. Thomas Hoenig: Fedu Up At the Fed.
* Plus. The Greening of BMW.
- Charlie Munger's big mouth.
- Do we really want a trade war?
- Bangalore's american rivals.
- Frankenfish: it's alive!
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