More by the Same Author
2013-12-07 Interview with Steve Forbes by John Mauldin of Millennium Wave Advisors
For whatever reason, Steve Forbes seems to bring out the passion in me. When I think about what central bank policies are doing to savers and investors, how we are screwing around with the pension system, circumventing rational market expectations because of an untested economic theory held by a relatively small number of academics, I get a little exercised. And Steve gives me the freedom to do it.
2013-11-30 Arsonists Running the Fire Brigade by John Mauldin of Millennium Wave Advisors
In the old days, central banks raised or lowered interest rates if they wanted to tighten or loosen monetary policy. In a Code Red world everything is more difficult. Policies like ZIRP, QE, LSAPs, and currency wars are immensely more complicated. Knowing how much money to print and when to undo Code Red policies will require wisdom and foresight. Putting such policies into practice is easy, almost like squeezing toothpaste. But unwinding them will be like putting the toothpaste back in the tube.
2013-11-24 Game of Thrones - European Style by John Mauldin of Millennium Wave Advisors
The Eurozone crisis is not over, and it will not end quickly or soon. Even if it seems to unfold in slow motion - like the slow build-up in a Game of Thrones storyline to violent internecine clashes followed by more slow plot developments but never any resolution, the Eurozone debacle has never really gone away. The structural imbalances have still not been fixed; politicians and central bankers have still not agreed to solve major fiscal problems; the overall economy still disintegrates; unemployment is staggeringly high in some countries and still rising; and the people are growing restless.
2013-11-17 The Unintended Consequences of ZIRP by John Mauldin of Millennium Wave Advisors
Two recently released papers make an intellectual and theoretical case for an extended period of very low interest rates and, in combination with other papers from both inside and outside the Fed from heavyweight economists, make a strong case for beginning to taper sooner rather than later, but for accompanying that tapering with a commitment to an even more protracted period of ZIRP. We are going analyze these papers, as they are critical to understanding the future direction of Federal Reserve policy. Secondly, we’ll look at some of the unintended consequences of long-term ZIRP.
2013-11-10 What Would Yellen Do? by John Mauldin of Millennium Wave Advisors
In advance of this week’s confirmation hearings for Federal Reserve Board Chairperson-nominee Janet Yellen, let’s pretend we are prepping our favorite Banking Committee senator for his or her few questions. What would you like to know? In this week’s letter I offer a few questions of my own.
2013-11-02 Bubbles, Bubbles Everywhere by John Mauldin of Mauldin Economics
The froth and foam on markets of all shapes and sizes all over the world. It is an exhilarating feeling, and the pundits who populate the media outlets are bubbling over with it. There is nothing like a rising market to help lift our mood. Unless of course, as Prof. Kindleberger famously cautioned, we are not participating in that rising market. Then we feel like losers. But what if the rising market is a bubble? Are we smart enough to ride and then step aside before it bursts? Research says we all think that we are, yet we rarely demonstrate the actual ability.
2013-10-26 A Code Red World by John Mauldin of Millennium Wave Advisors
The heart of this week’s letter is the introduction of my just-released new book, Code Red. It is my own take (along with co-author Jonathan Tepper) on the problems that have grown out of an unrelenting assault on monetary norms by central banks around the world.
2013-10-20 The Damage to the US Brand by John Mauldin of Millennium Wave Advisors
There is no doubt that the image what I will refer to in this letter as the "brand" of the United States has been damaged in the past month. But what are the actual costs? And what does it matter to the average citizen? Can the US recover its tarnished image and go on about business as usual? Is the recent dysfunction in Washington DC now behind us, or is it destined to become part of a bleaker landscape?
2013-10-12 Sometimes They Ring a Bell by John Mauldin of Millennium Wave Advisors
Three items have come across my screen in the past month that, taken together, truly do signal a major turning point in how energy is discovered, transported, and transformed. And while we’ll start with a story that most of us are somewhat aware of, there is an even larger transformation happening that I think argues against the negative research that has come out in the last few years about the reduced potential for growth in the world economy.
2013-10-05 The Road to a New Medical Order by John Mauldin of Millennium Wave Advisors
I will aim to dwell simply on the economic ramifications of the implementation of the Affordable Care Act, as it exists today. We are changing the plumbing on 17.9% of the US GDP in profound ways. Many, if not most, of the changes are absolutely necessary.
2013-09-28 The Renminbi: Soon to Be a Reserve Currency? by John Mauldin of Millennium Wave Advisors
Contrary to the thinking of fretful dollar skeptics, my firm belief is that the US dollar is going to become even stronger and will at some point actually deserve to be the reserve currency of choice rather than merely the prettiest girl in the ugly contest the last currency standing, so to speak. But whether the Chinese RMB will become a reserve currency is an entirely different question.
2013-09-21 Rich City, Poor City by John Mauldin of Millennium Wave Advisors
This week we will conclude our look at pension plans for the nonce with a 30,000-foot overview of the states and then take a deeper dive into one city: mine. This will give you at least one version of how to do your own homework about your own hometown. But fair warning, depending on your locale, you may need medical help or significant quantities of an adult beverage after you finish your research.
2013-09-14 Nothing But Bad Choices by John Mauldin of Mauldin Economics
Crises in government funding don’t simply arrive on the doorstep unannounced. Their progress toward the eventual Bang! moment is there for all the world to see. The root cause is almost always the same: debt. And whether that debt is actually borrowed or is merely promised to the populace, when the market becomes worried that the ability of the government to fund its promises is suspect, then the end is near. Last week we began a series on what I think is an impending crisis in the unfunded pension liabilities of state and local governments in the United States.
2013-09-07 Unrealistic Expectations by John Mauldin of Millennium Wave Advisors
Two well-respected analysts of pension funds have produced reports this summer suggesting that pensions are now underfunded by more than $4 trillion and possibly more than $5 trillion. I would like to tell you that the underfunding is all the bad news, but when you probe deeper into the problems facing pension funds, it just gets worse.
2013-08-31 How Do I Hate Thee? by John Mauldin of Millennium Wave Advisors
I will list a number of reasons why I hate this market and then suggest a few reasons why that should get you excited. We will look at some charts, and I’ll briefly comment on them. No deep dives this week, just a survey of the general landscape.
2013-08-25 France: On the Edge of the Periphery by John Mauldin of Millennium Wave Advisors
Charles de Gaulle said that "France cannot be France without greatness." The current path that France is on will not take it to renewed greatness but rather to insolvency and turmoil. Is France destined to be grouped with its Mediterranean peripheral cousins, or to be seen as part of the solid North Atlantic core? The world is far better off with a great France, but France can achieve greatness only by its own actions.
2013-08-17 Signs of the Top by John Mauldin of Millennium Wave Advisors
The investment media seems obsessed with the question of whether the Fed will taper. The real question should be not about "tapering" but about credibility. What happens when fundamentals become the narrative as opposed to what the central bank is doing? What happens if the Federal Reserve throws a liquidity party and nobody comes? Today we look at some of the fundamentals. The market is in fact overvalued, but that doesn’t mean it can’t become more overvalued. Is this August 1987 or August 1999?
2013-08-10 We Can't Take the Chance by John Mauldin of Millennium Wave Advisors
What would it have been like to be a central banker in the midst of the crisis in 2008-09? You’d know that you won’t have the luxury of going back and making better decisions five years later. Instead, you have to act on the torrent of information that’s coming at you, and none of it is good. Major banks are literally collapsing, the interbank market is nonexistent and there is panic in the air. Perhaps you feel that panic in the pit of your stomach. This week we’ll perform a little thought experiment to see if we can extrapolate what is likely to happen in when the nex
2013-08-05 Can It Get Any Better Than This? by John Mauldin of Millennium Wave Advisors
What in the world is going on?! As I write this letter from the Maine woods, the S&P 500 has just cleared 1,700 for the first time. The German DAX continues to set all-time highs above 8,400. The United Kingdom’s FTSE 100 is quickly approaching its 1999 record high of 6,930, and its mid-cap cousin, the FTSE 250, just broke through to its all-time level above 15,000. And last but not least, Japan’s Nikkei 225 is extending its gains once more, toward 14,500.
2013-07-27 A Lost Generation by John Mauldin of Millennium Wave Advisors
This week we will briefly look at why weak consumer spending is going to become an even greater problem in the coming years, and we will continue to look at some disturbing trends in employment.
2013-07-20 Any Bonds Today? by John Mauldin of Millennium Wave Advisors
Given the acknowledged limitations of the CPI, we nevertheless use it in myriad ways. It governs cost-of-living adjustments for Social Security beneficiaries, government employees, and many labor union members. CPI is baked into the general cake, even though we know it is an imperfect fit in almost every situation.
2013-07-13 The Bang! Moment Shock by John Mauldin of Millennium Wave Advisors
This week we resume our musings about Cyprus, to see what that tiny island can teach us about our own personal need to engage in ongoing critical analysis of our lives and investment portfolios. Cyprus is not Greece or France or Spain or Japan or the US or (pick a country). I get that. No two situations are the same, but there may be a rhyme or two here that is instructive.
2013-07-05 A Venture Investor from Bell Labs Channels the Noise and the Knowledge by John Mauldin of Millennium Wave Advisors
Alpha is found on the edges, away from common knowledge. It is in new technologies, and it can surely be found there, although there are different risks at the edge. But there are other sources of alpha, which can be found not by looking at what has happened but at what is likely to happen, not just in technology but in markets and the actions and reactions of those who would try to move markets.
2013-07-01 "This Country is Different" by John Mauldin of Millennium Wave Advisors
Cyprus is a very small country, some 800,000 people. Among the leadership, everyone knows everyone. There is much to admire, as we will see. But Cyprus has had a gut-wrenching crisis, proportionately more dire than any in other European countries recently; and precedents are being established here for how future problems will be dealt with in the Eurozone and elsewhere.
2013-06-21 Austerity is a Four-Letter French Word by John Mauldin of Millennium Wave Advisors
The France that I see as I look out from the bullet train today is far different from the France I see when I survey the economic data. Going from Marseilles to Paris, the countryside is magnificent. The farms are laid out as if by a landscape artist this is not the hurly-burly no-nonsense look of the Texas landscape. The mountains and forests that we glide through are glorious. It is a weekend of special music all over France, and last night in Marseilles the stages were alive and the crowds out in force.
2013-06-15 Economists Are (Still) Clueless by John Mauldin of Millennium Wave Advisors
The economic forecasts of mainstream economists are quite positive, if not enirely optimistic, reflecting the current data. Should we not take heart from that? Alas, no. This week we look at some of our recent musings on that topic, triggered by a letter from a very serious economist who took umbrage when I wrote disparagingly about economists and forecasting a couple months ago.
2013-06-08 Banzai! Banzai! Banzai! by John Mauldin of Millennium Wave Advisors
In practice it may be harder for Japan to grow and generate inflation than it might be for other major nations. Today we’ll focus on Japanese demographics. While the letter is full of graphs and charts, it does not paint a pretty picture. The forces of deflation will not go gently into that good night.
2013-06-01 Central Bankers Gone Wild by John Mauldin of Millennium Wave Advisors
For the last two weeks we have focused on the problems facing Japan, and such is the importance of Japan to the world economy that this week we will once again turn to the Land of the Rising Sun. I will try to summarize the situation facing the Japanese. This is critical to understand, because they are determined to share their problems with the world, and we will have no choice but to deal with them. Japan is going to affect your economy and your investments, no matter where you live; Japan is that important.
2013-05-25 The Mother of All Painted-In Corners by John Mauldin of Millennium Wave Advisors
Japan has painted itself into the mother all corners. There will be no clean or easy exit. There is going to be massive economic pain as they the Japanese try and find a way out of their problems, and sadly, the pain will not be confined to Japan. This will be the true test of the theories of neo-Keynesianism writ large. Japan is going to print and monetize and spend more than almost any observer can currently imagine. You like what Paul Krugman prescribes? You think he makes sense? You (we all!) are going to be participants in a real-world experiment on how that works out.
2013-05-18 All Japan, All the Time by John Mauldin of Millennium Wave Advisors
This week we again focus on Japan. Their stock market has been on a tear, and their economy grew 3.5% last quarter. Is Abenomics really the answer to all their problems? Is it just a matter of turning the monetary dial a little higher and voila, there is growth? Why doesn’t everyone try that? And what would happen if they did?
2013-05-13 Skills, Education, and Employment by John Mauldin of Millennium Wave Advisors
It is graduation time, and this morning finds me swimming in a sea of fresh young faces as a young friend graduates, along with a thousand classmates. But to what? I concluded my final formal education efforts in late 1974, in the midst of a stagflationary recession, so it was not the best of times to be looking for work. It turned out that I had a far different future ahead of me than I envisioned then. But I would trade places with any of those kids who graduated today, as my vision of the next 40 years is actually very optimistic.
2013-05-04 The QE Sandpile by John Mauldin of Millennium Wave Advisors
Sell in May and go away? What about "risk off?" And ever more QE? Today’s letter is a quick note and a reprise of a popular letter from yesteryear (with a bit of new slant), as I am at my conference in Carlsbad.
2013-04-27 The Cashless Society by John Mauldin of Millennium Wave Advisors
A cashless future might be farther off than we either fear or hope. Not only is it farther away than some think, we are actually seeing an increase in the use of cash all over the world (and this is not just a US phenomenon). We will look at some interesting factoids that make for thought-provoking discussions, but when we couple them with research on the rise of the unreported economy (aka the underground economy) and the number of people who get some form of government assistance, we may find problematic consequences resulting from hidden incentives that work in unintended ways.
2013-04-20 Austerity is a Consequence, not a Punishment by John Mauldin of Millennium Wave Advisors
Austerity is a consequence, not a punishment. A country loses access to cheap borrowed money as a consequence of running up too much debt and losing the confidence of lenders that the debt can be repaid. Lenders don’t sit around in clubs and discuss how to “punish” a country by requiring austerity; they simply decide not to lend. Austerity is a result of a country’s trying to entice lenders into believing that the country will change and make an effort to restore confidence.
2013-04-12 Assume a Perfect World by John Mauldin of Millennium Wave Advisors
Waiting for our forecasts to be wrong before we adopt a yet another “solution” based on a temporary fix of yet another forecast that turned out to be wrong is no way to run a railroad, unless you want your train running off a cliff. I applaud the recent attempts in DC to come to a solution on the deficits and budget, but where are the leaders who want to get real with those forecasts?
2013-04-08 The Theology of Inflation by John Mauldin of Millennium Wave Advisors
We begin this week with a simple pop quiz. Is inflation good or bad? Answer quickly. I’m sorry your answer is wrong. Or rather, we can’t know if your answer is right or wrong because we are not sure what is meant by the question. We may think we know and we may be right but we can’t be sure, because the word inflation has different meanings for different people in different places and different times. In fact, even the same people in the same place and time can’t agree on a precise definition.
2013-03-27 You Can't Be Serious by John Mauldin of Millennium Wave Advisors
I admit to being surprised by Cyprus. Oh, not the banking crisis or the sovereign debt crisis or the fact that its banks were eight times larger than the country itself or even the fact that the banks were bloated with Greek debt that had been written down. I wrote about all that a long time ago. What surprised me was that all the above was apparently a surprise to European leaders.
2013-03-21 Will the Real Unemployed Please Raise Your Hands? by John Mauldin of Millennium Wave Advisors
This week’s letter will be a very short part of a book I am writing with Bill Dunkelberg (the Chief Economist of the National Federation of Independent Businesses) on the future of employment. It has taken longer to write than I initially anticipated, for a host of reasons, chief among which is that the future is not as obvious as I originally thought. Diving into the data has brought a few surprises.
2013-03-13 Argentina on Sale by John Mauldin of Millennium Wave Advisors
(From Cafayate, Argentina) There are some who worry whether the path that Argentina has taken to monetary ruin on multiple occasions (and that it seems intent on taking again) is one that the US may also find itself on. That worry has crossed my mind a few times, I must confess. Today we will look at Argentina more in depth. From a monetary perspective, it deserves attention. And once again there will be opportunity.
2013-03-06 An Infinite Amount of Money by John Mauldin of Millennium Wave Advisors
The three major blocs of the developed world are careening toward a debt-fueled denouement that will play out over years rather than in a single moment. And contrary to some opinion, there is no certain ending. There are multiple paths still available to Europe and especially the US, though admittedly none of them are bright and carefree.
2013-02-27 The Healthcare Blues by John Mauldin of Millennium Wave Advisors
It has been some time since we peeked into my worry closet. A few questions this weekend prompted me to think about things I am paying attention to but have not written about, and one thing that I am not worried about at all, despite the apparent media hysteria.
2013-02-20 Whatever It Takes by John Mauldin of Millennium Wave Advisors
Was it only a few years ago I visited the Emerald Isle of Ireland? The collapse of its largest banks foreshadowed the demise of many other European banks that had borrowed money from British, German, and other European banks to lend against homes and property. The Irish government had to guarantee deposits and bond holders in order to prevent a bank run. I think I am correct when I state that the Central Bank of Ireland was the first central bank to avail itself of large-scale use of the Emergency Liquidity Assistance (ELA) provision of the European Central Bank.
2013-02-14 How Not to Run a Pension by John Mauldin of Millennium Wave Advisors
For all the focus on the unfunded liabilities of Social Security and Medicare, there is another unfunded crisis brewing, and this one is in your own back yard. It's coming to you even if you live outside of the US; it just might take a little longer to get there. I wrote ten years ago that state and local pension funds might be underfunded by as much as $2 trillion. It turns out that I was being overly optimistic. New government research suggests that the figure might be as high as $3 trillion. But what if you take into account that retirees are living longer?
2013-02-06 The Good, the Bad, and the Greek (Risks) by John Mauldin of Millennium Wave Advisors
Greece is a small country with large implications. Last week we began to explore what I learned from my recent trip to Greece. In this week's letter we will finish those observations and in particular look at some of the comments from my meetings with over 40 people: owners of small businesses and large ones, billionaires, taxi drivers, politicians, central bankers, investors, ex-patriots, wives, and mothers. I believe we can arrive at some small understanding of the problems Greece faces. Then we will consider the broader consequences for Europe.
2013-01-25 Prisoner of the Bureaucracy by John Mauldin of Millennium Wave Advisors
I wrote some time ago that Greece had a choice between Disaster A: staying in the euro; and Disaster B: leaving the euro. I have recently come back from four days in Greece, meeting with lots of people at all levels of society, and will share with you in this letter my analysis of their choices and the results. I'll also have a few things to say about what the developments in Greece might mean for the rest of Europe and the developed world.
2013-01-15 Forecast 2013: Unsustainability and Transition by John Mauldin of Millennium Wave Advisors
As we begin a new year, we again indulge ourselves in the annual rite of forecasting the year ahead. This year I want to look out a little further than just one year in order to think about the changes that are soon going to be forced on the developed world. We are all going to have to make a very agile adaptation to a new economic environment (and it is one that I will welcome). The transition will offer both crisis and loss for those mired in the current system, which must evolve or perish, and opportunity for those who can see the necessity for change and take advantage of the evolution.
2013-01-02 Somewhere Over the Rainbow by John Mauldin of Millennium Wave Advisors
We are 13 years into a secular bear market in the United States. The Nasdaq is still down 40% from its high, and the Dow and S&P 500 are essentially flat. European and Japanese equities have generally fared worse. The average secular bear market in the US has been about 11 years, with the shortest to date being four years and the longest 20. Are we at the beginning of a new bull market or another seven years of famine? What sorts of returns should we expect over the coming years from US equities?
2012-12-26 Looking on the Bright Side by John Mauldin of Millennium Wave Advisors
It is Christmas Eve and not the time for long letters just a brief note on why the fiscal cliff is not the End of All Things, and to point out a worthy cause led by some good friends of mine who are helping people who truly have no options in life. And we'll start things off with a movie review of sorts to launch us into a positive take on the year behind and the year ahead.
2012-12-18 Central Bank Insurance by John Mauldin of Millennium Wave Advisors
Possibly, the question I am asked the most is, "What do you think about gold?" While I have written brief bits about the yellow metal, I cannot remember the last time I devoted a full e-letter to the subject of gold. Longtime readers know that I am a steady buyer of gold, but to my mind that is different from being bullish on gold. In this week's letter we will look at some recent research on gold and try to separate some of the myths surrounding gold from the rationale as to why you might want to own some of the "barbarous relic," as Keynes called it.
2012-12-11 Peak Oil or Peak Energy? A Happy Solution by John Mauldin of Millennium Wave Advisors
A consistent theme in this letter has been the connections between items that may seem to be far removed from each other but are actually linked at the very core. If you push on one end you get a reaction in what would seem to be the most unlikely spots. Today we explore the connection between the fiscal deficit and energy policy.
2012-11-27 Capital Formation and the Fiscal Cliff by John Mauldin of Millennium Wave Advisors
In today's economic environment, we often complain about volatility and uncertainty, but there is one thing I think we can be fairly certain of: taxes are going up. I constantly try to impress upon my kids, most of whom are now adults, that ideas and actions have consequences. In todays letter we will look at some of the consequences of an increase in taxes. Please note that this is different from arguing whether taxes should rise or fall. For all intents and purposes that debate is over
2012-11-20 Where Will the Jobs Come From? by John Mauldin of Millennium Wave Advisors
For the last year, as I travel around, it seems a main topic of conversation is "Where will my kids find jobs?" It is a topic I am all too familiar with. Where indeed? Youth unemployment in the US is 17.1%. If you are in Europe the problem is even more pronounced. The basket case that is Greece has youth unemployment of 58%, and Spain is close at 55%. Portugal is at 36% and in Italy its 35%. France is over 25%. Is this just a cyclical symptom of the credit crisis?
2012-11-13 Central Bank Insurance by John Mauldin of Millennium Wave Advisors
"If you want to enjoy life, go to Buenos Aires. If you want to do business, go to Sao Paulo," the saying goes. It is hard to get an impression of a country by going to a city of 20 million people. It is like visiting New York City and thinking you can understand the United States. But I never fail to enjoy myself in Brazil.
2012-11-05 Three Men Make a Tiger by John Mauldin of Millennium Wave Advisors
In a few hours we will know the outcome of the US elections (hopefully without a repeat of 2000!). So, given that eventuality, why should we bother to explore the rather significant disparity in the models being used to create the polls to predict the outcome of the elections? Because doing so will help us understand why the models we use to predict the effects on our investments of market behavior and macroeconomics so often fail us, and why we should approach the use of such models with a full measure of wariness and skepticism.
2012-10-29 The Quest for Certainty by John Mauldin of Millennium Wave Advisors
The last two weeks we have been looking at the problems with models. First we touched on what I called the Economic Singularity. In physics a singularity is where the mathematical models no longer work. For example, models based on the physics of relativity no longer work if one gets too close to a black hole. If we think of too much debt as a black hole of sorts, we may understand why economic models no longer work. Last week, in "The Perils of Fiscal Cliff," we looked at the use of fiscal multipliers by economists in order to argue for or against governmental economic policies.
2012-10-23 The Perils of the Fiscal Cliff by John Mauldin of Millennium Wave Advisors
In today's letter we'll peek over the Fiscal Cliff and see what economic models can tell us about government spending. And if we have time we'll quickly look at an interesting study that uses economics to predict the outcome of this US presidential election.
2012-10-15 Economic Singularity by John Mauldin of Millennium Wave Advisors
There is considerable disagreement throughout the world on what policies to pursue in the face of rising deficits and economies that are barely growing or at stall speed. Both sides look at the same set of realities and yet draw drastically different conclusions. Both sides marshal arguments based on rigorous mathematical models "proving" the correctness of their favorite solution, and both sides can point to counterfactuals that show the other side to be insincere or just plain wrong.
2012-10-08 The Unemployment Surprise by John Mauldin of Millennium Wave Advisors
The unemployment number surprisingly dropped to 7.8% last Friday, and the shoot-from-the-hip crowd came out in force. To say that the jobs report was met with skepticism would be a serious understatement. The response that got the most immediate airplay was ex-GE CEO Jack Welch (who knows a few things about making a number say what you want it to say) tweeting, "Unbelievable job numbers ... these Chicago guys will do anything ... can't debate so change numbers."
2012-09-29 Uncertainty and Risk in the Suicide Pool by John Mauldin of Millennium Wave
Investors in the stock market, especially professionals, are obsessed with risk, your humble analyst included. We try to measure risk in any number of ways, looking for an edge to improve our returns. Not only do we try to determine probable outcomes, we also look for the 'fat tail' events, those things that can happen which are low in probability but will have a large impact on our returns.
2012-09-22 QE Infinity: Unintended Consequences by John Mauldin of Millennium Wave
Last Monday an op-ed in the Wall Street Journal, penned by five PhDs in economics, among them a former Secretary of the Treasury and an almost-guaranteed Nobel laureate (and most of them former members of the President's Council of Economic Advisors) minced no words in excoriating the current QE policy. We will look at that op-ed in detail below. The point is that there are grave reservations about the current policy among some very serious policy makers.
2012-09-15 The Direction of the Compromise by John Mauldin of Millennium Wave
I think this election has the potential to be one of those rare times, at least in terms of economic outcomes. In Thoughts from the Frontline we cover economics and investments, money and finance. We only rarely stray into the political world, and then only glancingly. Today, we cross that gray line, but at a somewhat different angle, as we look at the economic consequences of the political decision that will come with the choices we make in November in the US.
2012-09-08 Debt Be Not Proud by John Mauldin of Millennium Wave
The unemployment numbers came out yesterday, and the drums for more quantitative easing are beating ever louder. The numbers were not all that good, but certainly not disastrous. But any reason will do, if what you want is more stimulus to boost the markets ever higher. Today we will look first at the employment numbers, because deeper within the data is a real story. Then we look at how effective any monetary stimulus is likely to be.
2012-09-01 The Consequences of Easy Monetary Policy by John Mauldin of Millennium Wave Advisors
We heard from Bernanke today with his Jackson Hole speech. Not quite the fireworks of his speech ten years ago, but it does offer us a chance to contrast his thinking with that of another Federal Reserve official who just published a paper on the Dallas Federal Reserve website. Bernanke laid out the rationalization for his policy of ever more quantitative easing. But how effective is it?
2012-08-25 Boomers are Breaking the Deal by John Mauldin of Millennium Wave
We look at the trends in employment as well as take note of a signpost we passed on the way to finding out that we cant pay for all the future entitlements we have been promised.
2012-08-17 How Change Happens by John Mauldin of Millennium Wave
This is an encore appearance of the letter that is clearly the most popular one I have ever written, updated with a few thoughts from recent times (it was also part of a chapter in Endgame). Numerous reviewers have stated that this one letter should be read every year. As you read, or reread, Ill be enjoying a week off.
2012-08-11 And Then There Is Disaster C by John Mauldin of Millennium Wave
I have contended for some time that Europe is faced with two choices: Disaster A, which is the break-up of the eurozone, or Disaster B, which is the creation of a fiscal union, which keeps the euro more or less intact. Over the last few months I have come to realize that there is indeed a third option, which now looks increasingly possible. European leaders might do nothing more than deal with the problem immediately in front of them, moving from crisis to crisis in a slow-motion drift toward fiscal union.
2012-08-03 Time to Row, or Sail? by John Mauldin of Millennium Wave Advisors
Earnings are a topic of great debate. At any given time, you can hear someone on TV talking about how "cheap" the market is, while the person on the next channel goes on about how expensive the market is. Today we look at the cycle of earnings, rather than a specific point in time. Let me give you a little preview. In terms of time, this earnings cycle is already longer than average, and in terms of magnitude it is projected to go to all-time highs.
2012-07-28 Gambling in the House? by John Mauldin of Millennium Wave
The problem that gave rise to the LIBOR scandal is the lack of transparency. Why would banks want to reveal how much profit they are making? The last thing banks want is transparency. This week I offer a different take on LIBOR, one which may annoy a few readers, but which I hope provokes some thinking about how we should organize our financial world.
2012-07-21 The Lion in the Grass by John Mauldin of Millennium Wave
Today we'll explore a few things we can see and then try to foresee a few things that are not so obvious. This is a condensation of a speech I gave earlier this afternoon in Singapore for OCBC Bank, called "The Lion in the Grass." The simple premise is that it is not the lions we can see that are the problem; but rather, in trying to avoid them, it is often the lions hidden in the grass that we stumble upon that become the unwelcome surprise.
2012-07-14 The Beginning of the Endgame by John Mauldin of Millennium Wave Advisors
For the last year I have been writing that it is not clear that Europe (with the probable exception of Greece) will in fact break up. The forces that would see a strong fiscal union are quite powerful. In today's letter, I will try to bring you up to date on some insights I have had in the 18 months since Jonathan Tepper and I did the final edits on our book, The Endgame.
2012-07-07 Into the Matrix by John Mauldin of Millennium Wave Advisors
What does the current environment of earnings and valuations tell us about the prospects for the US stock markets in general over the next 3-5-7-10 years? This week we have part two of "Bull's Eye Investing Ten Years Later," which we started last week. These two letters have been co-authored with Ed Easterling of Crestmont Research. We take a look at research we did almost ten years ago as part of my book Bull's Eye Investing, updating the data and asking,"Are we there yet? When will we get to the end of the secular bear market?"
2012-06-30 Bull's Eye Investing (Almost) Ten Years Later by John Mauldin of Millennium Wave Advisors
The current valuation of the stock market is relatively high, but it is not overvalued, considering today's conditions. Low inflation-rate conditions should be accompanied by relatively high P/Es. But if deflation or high inflation (or both) are likely upcoming, the market is very expensive. On the other hand, if the inflation rate happens to remain near price stability, then this secular bear could remain active a while longer but how likely is that?
2012-06-23 Daddy's Home by John Mauldin of Millennium Wave Advisors
This week we will look at the recent action of the Fed and use that as a springboard to think about how effective Fed policy can be in an age of deleveraging. And we simply must look at Europe.
2012-06-16 The Bang! Moment is Here by John Mauldin of Millennium Wave Advisors
We know that money is simply flying out of Greek banks. A number of them are clearly insolvent, yet they are meeting demands for withdrawals. Where is the cash coming from? The answer is in the form of yet another acronym from Europe, called the ELA.
2012-06-09 A Dysfunctional Nation by John Mauldin of Millennium Wave Advisors
European leaders launched the euro project in the last century as an experiment to see whether political hope could become economic reality. What they have done is create one of the most dysfunctional economic systems in history. And the distortions inherent in that system are now playing out in an increasingly dysfunctional social order. Today we look at some rather disturbing recent events and wonder about the actual costs of that experiment. What type of "therapy" will be needed to treat the dysfunctional family that Europe has become?
2012-06-02 First Deflation, Then Inflation. But the Timing? by John Mauldin of Millennium Wave Advisors
One of the more frequent questions I am asked in meetings or after a speech is whether I think we will have inflation or deflation. My ready answer is, Yes. Then I stop, which I must admit is rather fun, as the person who asked tries to digest the answer. And while my answer is flippant, its also the truth, as I do expect both outcomes. So the follow-up question (after the obligatory chuckle from the rest of the group) is for a few more specifics. And the answer is that I expect we will first see deflation and then inflation, but the key is the timing.
2012-05-26 Meanwhile, Back at the Ranch by John Mauldin of Millennium Wave Advisors
We need to tear our gaze away from Europe and look around at what is happening in the rest of the world. There is about to be an eerily near-simultaneous ending to the quantitative easing by the four major central banks while global growth is slowing down. And so, while the future of Europe is up for grabs, the true danger to global markets and growth may be elsewhere.
2012-05-19 Dr. Frankensteins Europe by John Mauldin of Millennium Wave Advisors
We explore the options that the eurozone faces in order to stay together, and what it all means for some of the countries involved. While I have written for a very long time about the probability of Greece exiting the eurozone, the actuality is fraught with risk, not just for Europe but for the world economy. What happens in the next few months will impact us all for a very long time. Indeed, this is one of those years, as Lenin noted, when decades happen.
2012-05-12 Waving the White Flag by John Mauldin of Millennium Wave Advisors
Europe has embarked on a program that will require multiple trillions of euros of freshly minted money in order to maintain the eurozone. But the alternative, European leaders agree, is even worse. Today we will look at the recent German shift in policy, why it was so predictable, and what it means. This is a Ponzi scheme that makes Madoff look like a small-time street hustler.
2012-05-05 A Graphic Presentation by John Mauldin of Millennium Wave Advisors
The job market is still in a deep hole. At April's rate of job gains, it would take well over three years to return to December 2007's employment level, without adjusting for population growth; at the average rate of the last six months, it would take about two years. Earnings are weak, and the strongest sectors aren't those of which economic miracles are spun. QE3 looks like more of a possibility than it did a few days ago.
2012-04-28 A Gold Standard? by John Mauldin of Millennium Wave Advisors
Here is a speech by Jim Grant to the New York Federal Reserve. The always erudite Grant takes us back in time to the very beginnings of the Federal Reserve, to show us how far we have strayed from the original intent. Grant argued for a return to the gold standard in the very halls of fiat money! It seems the New York Fed is asking some of its critics to come and speak.
2012-04-21 A Little Bull's Eye Investing by John Mauldin of Millennium Wave Advisors
Bull's Eye Investing was the book that really helped establish this letter. It dealt with a host of investing ideas, secular market cycles, value investing, alternative investing, and more. I have taken that material, updated it, and written a new book, part of the Little Book series done by Wiley, called The Little Book of Bull's Eye Investing Finding Value, Generating Absolute Returns, and Controlling Risk in Turbulent Markets. I have waited to announce this one until it is off the presses and being shipped. Here is the introduction and part of the first chapter of the book.
2012-04-14 The War for Spain by John Mauldin of Millennium Wave Advisors
The inflection point that I thought the ECB had pushed down the road for at least a year with their recent 1 trillion LTRO is now rushing toward us much faster than Draghi had in mind when he launched his massive funding operation. So, we must pay attention to what Spain has done this week which, to my surprise, seems to have escaped the attention of the major media. It may be considered a tipping point when the crisis is analyzed by some future historian. And then we'll get back to some additional details on the US employment situation, starting with a few rather shocking data points.
2012-04-07 It's All About Jobs by John Mauldin of Millennium Wave Advisors
Friday's employment numbers were decidedly soft, but the unemployment rate went down anyway, and that is about the best you can say. And this being a holiday weekend, it provides us an opportunity to look deep into the employment numbers, while we put off thinking about Spain for at least a week. And who knew that being an unmarried Asian-American in the US was a risk for unemployment? Plus a few other interesting items will make for an interesting letter.
2012-03-31 All Spain All the Time by John Mauldin of Millennium Wave Advisors
The events of the last 24 hours compel me to once again look "across the pond" at the problems that not only plague Europe but will be a drag on world growth as well, as Europe goes through its continued painful adjustment as a consequence of trying to adopt a single currency. Since Spain is going to be on the front page for some time, it will be useful to look at some of the problems it is facing, to put it all into context. And what I heard while in Europe in private meetings is troubling.
2012-03-23 A Random Walk Through the Data Minefields by John Mauldin of Millennium Wave Advisors
We are once again to a point in Europe where there are no good choices, only very bad ones. But this time it is with a country that actually makes a difference. (No slight intended to Greece, but you are just small.) Spain has no good way to cut its deficit without things getting worse. But Europe must be willing to then fund Spanish debt, even if "only" through more LTRO actions by the ECB.
2012-03-17 Where Will the Jobs Come From? by John Mauldin of Millennium Wave Advisors
We will look at why employment is so critical. How are jobs created and what policies can be adopted to help foster more jobs? Should the US try and keep jobs that are going overseas, or develop whole new industries? Who exactly is the competition globally for jobs?
2012-03-10 There Will Be Contagion by John Mauldin of Millennium Wave Advisors
The headlines are about Greece, but the real story is not Greece but who is next. European leaders were right to be worried only a short while ago about contagion effects of a Greek default to the entire Euro system, which of course they now say doesn't exist. This week we look at Europe, and sort through the ever more fascinating implications of the news in today's headlines.
2012-03-03 Unintended Consequence by John Mauldin of Millennium Wave Advisors
This week we wonder about the consequences of the European Central Bank (ECB) issuing over 1 trillion in short-term loans to try and postpone a banking credit crisis and lower sovereign debt costs for certain peripheral countries in Europe. What if, instead of holding the European Monetary Union (EMU or Eurozone) together, that actually makes a breakup more likely? That would certainly fall under the rubric of unintended consequences, and be worth our time to contemplate in this week's letter.
2012-02-25 Tax That Other Guy by John Mauldin of Millennium Wave Advisors
Last week's letter on taxes drew more response than any letter I have written in years. Questions that were raised simply beg for an answer, and some of the replies were very thoughtful, well-written suggestions for alternatives. This week I am going to do something I can't ever remember doing, and that is to use the entire letter to involve and respond to my readers.
2012-02-18 The Cancer of Debt and Deficits by John Mauldin of Millennium Wave Advisors
We will explore some options to actually resolve the deficit and debt crisis. Cutting spending or raising taxes have consequences, but not all cuts and not all taxes are the same. For those who have been wanting more specific solutions from me, I am going to address the issues surrounding taxation and offer my thoughts as to what we should do.
2012-02-11 The Answer We Dont Want to Know by John Mauldin of Millennium Wave Advisors
This election is ultimately about dealing (or not dealing) with the deficit, and putting the country on a path to a sustainable budget deficit, one that is less than the growth rate of the country. As I have argued elsewhere, and will argue in future letters, that is the paramount issue. Not dealing with the deficit runs the very real risk of the bond market treating us just as it is treating Italy and any other country that gets to the point where its debt is unsustainable.
2012-02-04 Who Took My Easy Button? by John Mauldin of Millennium Wave Advisors
There is no way enough money can be found to fund our entitlement programs, given the current system, even under the best of assumptions. Things must change. Either we will make the difficult choices or those changes will be forced by the market. The longer we put off the difficult choices, the more painful the consequences. This week we begin a series on the choices facing the US. We need to understand the consequences of the choices we make. Cut spending, say some. Tax the rich, say others. Cut out waste and corruption is always a popular choice. Do all of the above, intone others.
2012-01-28 The Transparency Trap by John Mauldin of Millennium Wave Advisors
We look at the shift in Fed policy, and at the balance sheets of central banks, US GDP, Portugal and the ECB, the LTRO policy, and yes, theres even a tidbit on Greece. Unemployment will be higher than we are comfortable with; it is just a product of the current environment and simple math. The US economy is in a Muddle Through range of around 2%. If not for a potential shock coming from a serious European crisis and real recession, the US should not slip into outright recession this year.
2012-01-21 Staring into the Abyss by John Mauldin of Millennium Wave Advisors
Europe's leaders are committed to keeping both the euro and the eurozone as it is. But for it to do so, everything must change, as the wonderful quote from the 1958 Italian novel suggests. This is no easy task, as no one wants a change that will impact them negatively; and there is no change that will allow things to stay the same that does not impact all severely, as we will see. In the third part of a continuing series, we look at the actual options that are available on the menu of choices, or as one group called it, the menu of pain.
2012-01-14 The End of Europe? by John Mauldin of Millennium Wave Advisors
The peripheral countries have no choices that allow them to grow and prosper without first suffering (for perhaps a long time) some very real economic pain. Leaving the eurozone has severe consequences; but the economic pain of leaving would go away sooner and allow for quicker adjustments, than if they stayed. However, the initial pain would be worse than the slow pain they'd suffer by staying in the euro. Their choice is, simply, which pain do they want or maybe, which pain do they think they want? Because whatever they choose, they are not going to like it.
2012-01-07 2012: A Year of Choices by John Mauldin of Millennium Wave Advisors
2012 will the year that the consequences of the choices made by the developed world will begin to manifest themselves in the economic realm. We are in the closing chapters of the current Debt Supercycle, with different countries strewn out along the path, and all headed for a destination that will force major decisions if politically painful actions are not taken. Some countries (e.g., Greece) have a choice between the dire and the disastrous. The option for merely difficult choices was long ago, and there is no going back to where you started without a different but equally painful outcome.
2011-12-31 Collateral Damage by John Mauldin of Millennium Wave Advisors
The economic travails of much of the West are reaching a decisive stage as the year ends. In 2008, we predicted sluggish recovery and a long period of low growth for the West in a two-speed world. This picture does not now properly reflect the downside risks. The policy of "kicking the can down the road" is failing, as the intensifying crisis in the euro zone and the failure of the G20 summit in late October clearly demonstrate. As to December's European summit, we describe its impact later in this paper.
2011-12-24 Your Three Investing Opponents by John Mauldin of Millennium Wave Advisors
Recently I have been having a running conversation with Barry Ritholtz on the psychology of investing (something we both enjoy discussing and writing about). Since I am busily researching my annual forecast issue (and taking the day off), I asked Barry to share a few of his thoughts on why we do the things we do. He gives us even more, exploring the three main opponents we face when we enter the arena of investing.
2011-12-17 The Center Cannot Hold by John Mauldin of Millennium Wave Advisors
We'll leave aside the politics of the payroll tax extension and look at the economic implications, and then go on to examine the deficit in the US. That will give rise to some thoughts about Europe and what would have to happen for a country to leave the euro. We'll finally close with some thoughts and graphs about the more controversial part of the tax cut extension, the Keystone XL Pipeline. Just how radical is it to build such a pipeline in the US? And what are the implications for the deficit?
2011-12-10 A Player to Be Named Later by John Mauldin of Millennium Wave Advisors
There are two main points to be taken away from this week's European summit. First, the Germans really took control. This has been coming for a long time, and it's not like we haven't discussed it in these letters. Second, Britain either opted out or was shown the door, depending on your point of view. That is the real game-changer, long-term, for more than the obvious reasons.
2011-12-03 Time to Bring Out the Howitzers by John Mauldin of Millennium Wave Advisors
It is now common to use the term bazooka when referring the actions of governments and central banks as they try to avert a credit crisis. And this week we saw a coordinated effort by central banks to use their bazookas to head off another 2008-style credit disaster. The market reacted as if the crisis is now over and we can get on to the next bull run. Yet, we will see that it wasn't enough. Something more along the lines of a howitzer is needed (keeping with our WW2-era military arsenal theme). And of course I need to briefly comment on today's employment numbers.
2011-11-25 Changing the Rules in the Middle of the Game by John Mauldin of Millennium Wave Advisors
Angela Merkel is leading the call for a rule change, a rewiring of the basic treaty that binds the EU. But is it both too much and too late? The market action suggests that time is indeed running out, and so well look at the likely consequences. Then I glance over the other way and take notice of news out of China that may be of import.
2011-11-19 Print or Perish by John Mauldin of Millennium Wave Advisors
I do not think the euro will survive with the current mix of countries, nor do I think that Germany thinks so either. Greece is likely to go, as is Portugal. Can Spain really get its deficit under control in time? Do we see a two-euro world, one in the northern states and one in the southern? And to which one does France go? Looking at the politics, one might think the answer is obvious, but if you just look at the numbers, it is clearly not. France is in many respects a Mediterranean country. So many choices and none of them good.
2011-11-12 Where is the ECB Printing Press? by John Mauldin of Millennium Wave Advisors
There is too much debt in many southern countries; France is not far from having its own crisis if they do not get back into balance. And if they lose their AAA rating, then any EFSF solution is just so much bad paper. The path of least resistance, and I use that term guardedly, is for the ECB to find its printing press. Perhaps they can borrow one from Bernanke.
2011-11-05 Where Will the Jobs Come From? by John Mauldin of Millennium Wave Advisors
What is the role of government in creating jobs? To answer that, let's look at the data that shows us where jobs come from. And we find that net new jobs for the last 15 years came from new business start-ups. Big business is a net drag on job creation, and small businesses are a wash. Governments have seen job growth, but where does the money come to pay government employees?
2011-10-29 European Summit: A Plan with No Details by John Mauldin of Millennium Wave Advisors
The market reacted like yesterdays announcement was the Second Coming of the Solution to End All Solutions. But if you look deeply there is more to the market "melt-up" than simple euphoria and relief. What you find is a very disturbing unintended consequence that will come back to haunt us. The finger points to derivatives and credit default swaps. This week, we look at gamma and delta and other odd entities that may be behind the real reason for the market response, as we march inexorably toward the final chapters of the Endgame.
2011-10-15 Can 'It' Happen Here? by John Mauldin of Millennium Wave Advisors
The beginning of the end of the Weimar Republic was some 89 years ago this week. There is a stream of opinion that the US is headed for the same type of end. How else can it be, given that we owe some $75-80 trillion dollars in the coming years, over 5 times current GDP and growing every year? Remember the good old days of about 5-6 years ago (if memory serves me correctly) when it was only $50 trillion? With a nod to Bernankes helicopter speech, where he detailed how the Fed could prevent deflation, I ask the opposite question, Can it (hyperinflation) really happen here?
2011-10-08 An Irish Haircut by John Mauldin of Millennium Wave Advisors
But here is the issue for Europe. The amount of money needed for Ireland is going to be a lot more than they now think, or at least are willing to admit. When Eurozone politicians worry about 'contagion,' or one country wanting the debt relief that another country gets, it is a very real worry. And rightfully so, as voters in Portugal or Spain or (gasp) Italy who are burdened by debt that is seemingly intractable will also want relief. It is not just an Irish condition, it is a human trait.
2011-10-01 Tough Choices, Big Opportunities by John Mauldin of Millennium Wave Advisors
There is a pattern, and the United States is no different than Greece or Ireland or Italy or Japan or any other country in history. Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang! confidence collapses, lenders disappear, and a crisis hits. There's a limit to how much the bond market is going to let us borrow. As we approach that limit and we're not there yet, we have time, thank God we can make choices about how we want to deal with the problem. But the problem is too much debt and too high a deficit.
2011-09-24 Catastrophic Success by John Mauldin of Millennium Wave Advisors
Rick Perry touched the third rail of Social Security and called it a Ponzi scheme, which of course immediately made him the leading candidate in the shoot the messenger category. Behind the rhetoric, I look at some actual numbers. Not the unfunded liabilities, thats too easy. Lets look at what a heartless, uncompassionate man President Roosevelt was when he started Social Security. And of course, we must start off with the results of the FOMC meeting, which has me feeling not at all amused. What are they thinking? Apparently, they are seeing the results from another, alternative universe.
2011-09-17 Twist and Shout? by John Mauldin of Millennium Wave Advisors
What in the wide, wild world of monetary policy is the Fed doing, giving essentially unlimited funds to European banks? What are they seeing that we do not? And is this a precursor to even more monetary easing at this next weeks extraordinary FOMC meeting, expanded to a two-day session by Bernanke? Can we say 'Operation Twist?' Or maybe 'Twist and Shout?'
2011-09-10 Preparing for a Credit Crisis by John Mauldin of Millennium Wave Advisors
This week we turn our eyes first to Europe and then the US, and ask about the possibility of a yet another credit crisis along the lines of late 2008. I then outline a few steps you might want to consider now rather than waiting until the middle of a crisis. It is possible we can avoid one but whether we do depends on the political leaders of the developed world making the difficult choices and doing what is necessary. And in either case, there are some areas of investing you clearly want to avoid. Finally, I turn to the weather and offer you a window into the coming seasons.
2011-09-04 Its All About the Jobs and Gold by John Mauldin of Millennium Wave Advisors
If somehow a Republican appeared in the White House tomorrow, there is no magic he (or she!) could bring with him/her to fix the unemployment problem. There are just some things the private sector will have to do for itself, and the sooner the government stops getting in the way, the sooner will get things fixed. But it will take a long time, no mater what. For the record, I think you should own about 5% of your net worth in gold, as insurance, not as an investment.
2011-08-27 The End of the World, Part 1 by John Mauldin of Millennium Wave Advisors
It is only a matter of time until Europe has a true crisis, which will happen faster BANG! than any of us can now imagine. Think Lehman on steroids. The US gave Europe our subprime woes. Europe gets to repay the favor with an even more severe banking crisis that, given that the US is at best at stall speed, will tip us into a long and serious recession. Stay tuned.
2011-08-20 The Recession of 2011? by John Mauldin of Millennium Wave Advisors
If we are headed into recession, and I think we are, then the stock market has a long way to go to reach its next bottom, as do many risk assets. Income is going to be king, as well as cash. Well know several things. Recessions are by definition deflationary. Yields on bonds will go down, much further than the market thinks today. And while the Fed may decide to invoke QE3 to fight a deflation scare, the problem is not one of liquidity; it is a debt problem.
2011-08-13 The Beginning of the Endgame by John Mauldin of Millennium Wave Advisors
In short, there are no easy solutions. We have just about used up all our rabbits in the hat as far as fiscal and monetary policy are concerned. We now need to focus on what we can do to get out of the way of the private sector, so it can find ways to create new businesses and jobs. And that means figuring out how to get money to new businesses, because that is where net new jobs come from. But that takes time...
2011-08-06 The Case for Going Global Is Stronger Than Ever by John Mauldin of Millennium Wave Advisors
If we have learned anything from the current financial mess, its that building wealth is dependent on rational analysis, careful decision making, and risk management. Thats why sticking close to home at a time when our markets are more uncertain than ever is a recipe for disaster and absolutely the wrong thing to do. Not only will you miss out on the worlds fastest-growing markets, but the odds are exceptionally high that you will miss as much as 50% or more in potential returns over the next decade.
2011-07-30 An Economy at Stall Speed by John Mauldin of Millennium Wave Advisors
The economy is at stall speed, it is quite possible well see further downward revisions to the already anemic growth numbers, and Congress and the President are dithering over the debt ceiling. It will not take much to push us into an outright recession. We can go a few days, I think, with the latter problem, but not too long or the markets will throw up.
2011-07-23 Kicking the Can Down the Road One More Time by John Mauldin of Millennium Wave Advisors
I hope Europe pulls it off. I really do. They have done the US a huge favor by adopting this latest plan, as it keeps their banking system from imploding; because their banks are essentially insolvent with all the sovereign debt on their books. Such a banking crisis, which would be worse than 2008, in my opinion, would no doubt plunge a world already slowing down back into recession and pull our own slow-growth economy down into recession with them. How long can they kick the can down the road? My guess is that it will be longer than we suspect.
2011-07-16 Back to the Basics by John Mauldin of Millennium Wave Advisors
This week we are going to revisit some themes concerning the problems of the debt and the deficit. I am getting a number of questions, so while long-time readers may have read most of this in one letter or another, it is clearly time for a review, especially given the deficit/debt-ceiling debate. I will probably offend some cherished beliefs of most readers, but that is the nature of the times we live in. It is the time of the Endgame, where things are not as black and white as they have been in the past.
2011-07-09 What Happened to the Jobs? by John Mauldin of Millennium Wave Advisors
The economy will be slowing down. A recession in 2012 is a real possibility if there is any type of shock coming from Europe. Most European leaders are basing their thinking more on hope than on reality. When Greece defaults there will be a domino effect. And you could actually see a banking crisis before we get actual sovereign defaults. The market does not get it. Neither in Europe nor in the US. When someone says the market has already priced in a default, go back and ask them how well the market priced in a crisis in the spring of 2008. The market doesn’t know jack.
2011-07-02 My View on the Last Half of the Year by John Mauldin of Millennium Wave Advisors
The economy should be in Muddle Through range (around 2% growth), absent any shocks. For instance, today we had the June ISM number, which was stronger than most analysts expected, at 55.3. There was a lot of whispering that it could dip below 50. Some of the internal components were a little soft, though. New Orders were barely above 50. And Backlogs fell below 50. Exports fell to the lowest level in two years (more on that below). Of the 18 industries surveyed, only 12 reported growth. But Muddle Through is not going to allow us to really cut into the unemployment problem.
2011-06-25 The Contagion Risk of Europe by John Mauldin of Millennium Wave Advisors
Europe would be better off just taking the money they are giving to Greece and using it to recapitalize their banks. Let Greece go. Give it up. Let them enter a 12-step program or whatever it is that insolvent nations do. That is harsh, but it is also the truth.
2011-06-17 Could the Eurozone Break Up? by John Mauldin of Millennium Wave Advisors
If the euro is not going to fall sharply, if reducing unit labor cost takes too long to restore competitiveness and growth and if deflation is unfeasible or (if achieved) self-defeating, there is only one other way to restore competitiveness and growth: Leave the monetary union, go back to national currencies and thus achieve a massive nominal and real depreciation. After all, in all emerging market financial crises where growth was restored, a move to flexible exchange rates was necessary and unavoidable on top of official liquidity, austerity and reform and debt restructuring and reduction.
2011-06-10 Time to Get Outraged by John Mauldin of Millennium Wave Advisors
This week we look at data from the Bank of International Settlements, by which (if someone does a lot of work) you can figure out how much US banks have written in credit default swaps to banks in Europe on Greek, Irish, and Portuguese debt. The details should not make you happy. I meditate on whether one should buy a house now, and then discuss “the way out” of all this mess and why we will Muddle Through.
2011-06-03 Economic Whiplash by John Mauldin of Millennium Wave Advisors
The political winds in Europe are shifting. The crowd that runs the various member countries today will not long survive the changes. There will be new politicians with different mandates as it becomes clear that the costs of the bailout are going to fall on the backs of the solvent countries and that austerity is going to mean hellishly bad deflation, high and rising employment, and depression in the indebted countries. And with the US economy slowing down, it might not take much to push us over the edge.
2011-05-28 A Random Walk Through the Minefield by John Mauldin of Millennium Wave Advisors
In the last 48 hours, so much news has come out of Europe that has me frankly shaking my head. It is a strange game of brinksmanship they are playing, and it is one we should be paying attention to (as if the brinkmanship played by US politicians over the debt ceiling is not enough). This week we look at what seems to be European leaders taking random walks through the minefield at the very heart of the European Experiment. As Paul Simon wrote, “A man sees what he wants to see and disregards the rest.”
2011-05-21 All for One Euro and One Euro for All? by John Mauldin of Millennium Wave Advisors
What Will the EU Do? Seriously, will Trichet really say “non” when they once again peer down at the abyss? He blinked last time. But if the desire is to acknowledge in private what they cannot say in public - that Greece should leave the eurozone and go back to the drachma - there is no better way than to not take Greek debt onto the ECB’s books. It is not a matter of whether Greece defaults, but when. It may be easier in the long run to clean up the mess they have now than continue to create even more debt that cannot be paid.
2011-05-14 Kicking the Can to the End of the Road by John Mauldin of Millennium Wave Advisors
A crisis is brewing in the US and one is coming to a slow boil in Europe. We visit Greece and Ireland and ponder how this will end. It is all well and good to kick the can down the road, but what happens when you come to the end of the road? The European answer seems to be to haul in the heavy equipment and extend the road. In short, we are watching the biggest bubble of all time, the bubble of government debt, try to keep from popping. My bet is that it can’t. And while the ride will be bumpy, the world our kids get will be better off at the end of the process.
2011-05-07 Muddle Through, or Crisis? by John Mauldin of Millennium Wave Advisors
This week I finish the two-part letter on the Endgame and give you my thoughts on the economy over the next five years. This is the second part of a speech I gave last week at the Strategic Investment Conference in La Jolla. It is a rather bold forecast, and fraught with peril and likely errors, but that is my job here. I must offer one large caveat! If the facts change so will my forecast, but this is the view into my very cloudy crystal ball as I see it today. As always, remember that those of us in the forecasting world are often wrong but seldom in doubt. Read accordingly.
2011-04-29 The Endgame Headwinds by John Mauldin of Millennium Wave Advisors
By Endgame I mean the period of time in which many of the developed economies of the world will either willingly deleverage or be forced to do so. This age of deleveraging will produce a fundamentally different economic environment lasting anywhere from 4-6 years. Now, whether this deleveraging is orderly, as now appears to be the case in Britain, or more resembles what I have long predicted will be a violent default in Greece, it will create a profoundly different economic world from the one we have lived in for 60 years.
2011-04-23 The 'Miracle' of Compound Inflation by John Mauldin of Millennium Wave Advisors
Investors will face the “zero bound” in interest rates for a while longer. They can sit on their cash and earn nothing. They can fret and wring their hands about a ramp-up in inflation, but the evidence so far does not support it. They can stay in the US dollar, in which case they can watch their dollars weaken relative to the rest of the world. Travelling in Sicily or Rome validates how strong the euro is relative to the dollar. All you have to do is buy a dinner or hotel room.
2011-04-16 The Cure for High Prices by John Mauldin of Millennium Wave Advisors
Today we once again think about the inflation/deflation debate, turn our eyes to Europe and the very interesting election happening there this Sunday, and speculate a little about what could derail the US economy. The old line is that the cure for high prices is high prices. When prices rise, businesses tend to respond by producing more. If the price of something gets too high, then people buy less, which then leads to too much supply, which lowers prices. Rinse and repeat. Last week I wrote about what I think is the potential for inflation in the US to rise to uncomfortable levels (4-5%)
2011-04-09 The Curve in the Road by John Mauldin of Millennium Wave Advisors
We have chosen deliberately to take the inflation road. We have not traveled that road for some time. The Fed may think they know what is around the curve and what to do if inflation comes back, but no two crises are the same. I worry about these things. If the Fed and the US government wanted a weaker dollar, the return of inflation, and the potential for yet another boom-bust, they could not have designed better policies than the ones they’re pursuing.
2011-04-02 The Plight of the Working Class by John Mauldin of Millennium Wave Advisors
Although the headline unemployment number went down to 8.8%, the only way you can get to that number is by not counting the millions who have dropped out of the employment pool, too discouraged to look, but who will take a job if they can get one. If you go back and take the number of people in the labor force just two years ago, the unemployment picture is back over 10% (back-of-my-napkin math).
2011-03-26 Unintended Consequences by John Mauldin of Millennium Wave Advisors
Governments around the world need to be alert and make difficult choices to deal with a world excess liquidity. From an investor’s point of view, enjoy the current ride in emerging markets but recognize that they are high beta to the U.S. economy and stock markets. The next time the United States goes into recession—and there will be a next time—it is likely that emerging markets will suffer significant losses. So, emerging markets are a trade and not a long-term investment.
2011-03-19 The End of QE2? by John Mauldin of Millennium Wave Advisors
The Fed committed to buying $600 billion of Treasuries between the beginning of QE2 in November and the end of June. June is 3 months away. What will happen when that buying goes away? The hope when QE2 kicked off was that it would be enough to get the economy rolling, so that further stimulus would not be deemed necessary. We’ll survey how that is working out, with a quick look at some recent data, and then we go back and see what happened the last time the Fed stopped quantitative easing.
2011-03-12 Inflation and Hyperinflation by John Mauldin of Millennium Wave Advisors
Companies and households typically deal with excessive debt by defaulting; countries overwhelmingly usually deal with excessive debt by inflating it away. While debt is fixed, prices and wages can go up, making the total debt burden smaller. People can’t increase prices and wages through inflation, but governments can create inflation, and they’ve been pretty good at it over the years. Inflation, debt monetization, and currency debasement are not new. They have been used for the past few thousand years as means to get rid of debt. In fact, they work pretty well.
2011-03-05 Are Booming Economies Good for the Markets? by John Mauldin of Millennium Wave Advisors
The important question is whether booming growth is always good for equity markets. On that, the data is mixed. While strong growth usually leads to higher earnings, it typically leads to tighter liquidity. The most dangerous periods for equity markets are typically strong economic activity combined with rapidly rising oil prices. In 34% of the years since 1950 with economic growth have experienced declining EPS growth. A doubling in the oil price is not good for markets. If we begin to work on the deficit with cuts and tax increases, it will be a headwind for economic growth and earnings.
2011-02-26 When Irish Eyes Are Voting by John Mauldin of Millennium Wave Advisors
Mauldin reviews the Irish economy, citing a recent Vanity Fair article by Michael Lewis. Ireland's housing bubble caused prices to rise approximately 500%. More than 20% of the Irish workforce was employed in construction. Irish banks financed this, using selling bonds to other European banks. The Irish government made good on those debts, burdening its taxpayers. The end results is excessive debt for the EU, which appears to be unsupportable. On the crisis in the Middle East, Bahrain is the key country to watch out for.
2011-02-19 A Random Walk Around the Frontlines by John Mauldin of Millennium Wave Advisors
Today we do a Random Walk Around the Frontlines, surveying what’s going on in the world. The US economy continues to improve in fits and starts. Inflation for the last six months has risen rather smartly. And for the last three months inflation on an annualized basis is running over 3%. The recent drop in the unemployment rate was entirely due to rather dramatic drops in what is known as the participation rate - fewer people looking for jobs. The Fed needs to end its program of quantitative easing.
2011-02-12 The Future of Public Debt by John Mauldin of Millennium Wave Advisors
Mauldin looks at an important paper from the Bank of International Settlements on “The Future of Public Debt.” While the debt supercycle is still growing on the back of increasing government debt, there is an end to that process, and we are fast approaching it. Drastic measures are necessary to check the rapid growth of current and future liabilities of governments and reduce their adverse consequences for long-term growth and monetary stability. This leads the BIS to conclude that the question is when markets will start putting pressure on governments, not if.
2011-02-04 An Excerpt from Endgame by John Mauldin of Millennium Wave Advisors
Growth does not look that great, and people don’t feel the recovery. This is unlikely to change. The U.S. and most developed economies are currently facing many major headwinds that will mean that going forward, we’ll have slower economic growth, more recessions, and higher unemployment. Three large structural changes have happened slowly over time that we expect to continue going forward. The U.S. economy will have higher volatility,lower trend growth, and higher structural levels of unemployment (The United States here is a proxy for many developed countries with similar problems.)
2011-01-29 A Bubble in Complacency by John Mauldin of Millennium Wave Advisors
The just released Q4 GDP of 3.2% may be overstated by 0.5% to 1.0% as a result of statistical adjustments. Consumer spending advanced, but that must be tempered by the support from fiscal and monetary policies. The growth in the deficit poses imminent danger of another recession, and the political landscape makes it unlikely a solution will emerge. Mauldin would like to see 'thought leadership' in the upcoming presidential election cycle, in order to build support for viable policies to revive the economy.
2011-01-22 The Unsustainable Meets the Irresistible by John Mauldin of Millennium Wave Advisors
States are the largest component of US GDP, and states' revenues have declined 10% from their peak. On top of that, federal stimulus support for states is running out. Congress should allow states to declare bankruptcy and force unions to come to the bargaining table. The US is on an unsustainable path. Absent very serious fiscal remedies, long before we get to 2019 the bond markets will have taken away our ability to finance our debt at low rates.
2011-01-15 Thinking the Unthinkable by John Mauldin of Millennium Wave Advisors
Mauldin criticizes Bernanke's comment that a benefit of QE2 has been rising equity prices, arguing that this would amount to a third mandate for the Fed. He commends Richard Fisher of the Dallas Fed for his comments that monetary policy is not a tool to solve the country's fiscal problems. Mauldin then says that a big treat to his growth forecast is continued sovereign debt problems in Europe. Lastly, he questions whether China can engineer a soft landing for its economy, given rising inflation.
2011-01-08 Forecast 2011: Better than Muddle Through by John Mauldin of Millennium Wave Advisors
Mauldin reviews his prior-year forecast. He was right on currencies and gold, but missed the bull market in equities. For 2011, he likes gold relative to the euro, pound and yen, but is less bearish on the pound than he was a year ago. He fears the Kamchatka volcanoes (in Russia) will trigger a spate of bad wealth which will lead to scarce resources and inflation. He is optimistic about the job market and employment, and forecasts that the US economy will grow 2.5-3% in 2011. He fears, however ,that structural problems in the work force will leave many untrained for employment.
2010-12-23 Some Thoughts on Market Timing by John Mauldin of Millennium Wave Advisors
I have real doubts that there will be “hundreds of billions” of losses in the municipal bond market. It would take a default by almost every major municipal issuer, and a lot of small ones, to create a hundred billion in defaults, something not likely to happen. States will be forced to make spending cuts. Mauldin also cites three sources who he "highly respects" who advise to hedge US equity portfolios going into 2011.
2010-12-17 Kicking the Can Down the Road by John Mauldin of Millennium Wave Advisors
A collapse of a major European bank could trigger counterparty mayhem in the US banking system, at least among our major investment banks. The ECB is now earnestly continuing to kick the can down the road, buying ever more debt off the books of banks, buying time for the banks to acquire enough capital. If the ECB were to keep this up, even in a deflationary, deleveraging world it would eventually bring about inflation and the lowering of the value of the euro against other currencies. One country after another in Europe is coming under pressure. This week the debt of Belgium was downgraded.
2010-12-11 Unintended Consequences by John Mauldin of Millennium Wave Advisors
The recent rise in interest rates is due to the reallocation of globally indexed funds away from sovereign debt and into something else. The may be a prelude to a sovereign default or a more rapid rise in rates, which could unfold very quickly. Global deleveraging is not over. QE2 and the nervousness of investors around the world are pushing up interest rates.
2010-12-03 Texas, Ireland and Ten Little Indians by John Mauldin of Millennium Wave Advisors
Mauldin contrasts the plights of Iceland and Ireland in dealing with excessive leverage. Iceland devalued its currency, while Ireland must accept a bailout package. Iceland's economy is recovering; Ireland's may take years. Mauldin compares the situation in Spain and Portugal to those two countries. The stronger EU countries must rescue the weak, just as Texas is being asked to rescue fiscally troubled states like California.
2010-11-28 Recessions are on the Margin by John Mauldin of Millennium Wave Advisors
We had a slate of good news over the past few weeks, including data on business confidence, housing, and unemployment. GDP growth is slowing, but it is still north of 2%. The economy may be able to handle only taking away the tax cuts for those with over $250,000 in income. It will slow things down, but probably not enough to cause a recession. Given that government spending is going to go down (at least I hope so), unemployment is going to take time to get under control; and with the whole developed world in a mess, it is hard to see an environment where we can average 3.5% for this decade.
2010-11-20 O Deflation, Where is Thy Sting? by John Mauldin of Millennium Wave Advisors
The economy growing between one and two percent. That is better than recession but not good enough to really bite into the unemployment rate, which means trouble. Mauldin examines the construction of the BLI's CPI index and specifically the role of housing: inflation, when you take out housing costs, is a jaunty 1.9%. Right in the Fed target range of 1.5-2%. The Fed's QE program may create inflation where we can least afford it - in energy and food.
2010-11-13 First, Let's Lower the Bar by John Mauldin of Millennium Wave Advisors
Mauldin responds to criticisms of a recent email he sent regarding healthcare reform. Next, he notes that for the last 18 months the trade-weighted yuan has dropped well over 10%, which he calls extraordinary. On the recently announced unemployment results, he says government "fiddling" with seasonal adjustments distorted the numbers. Last, he comments on the Irish sovereign debt issue.
2010-11-05 Thoughts on Liquidity Traps by John Mauldin of Millennium Wave Advisors
Lacy Hunt writes that the Oct employment situation was dramatically weaker than the headline 159k increase in employment measures. The most distressing aspect is the loss of another 124K full-time jobs, bringing the 5-month loss to 1.1 million. John Hussman discusses liquidity traps, where investors prefer cash to debt (because of low interest rates) and the central bank loses control. Fiscal policy, not monetary policy, impacts economic growth and inflation - and the proper fiscal measures, such as infrastructure spending, may be the best hope for growth.
2010-10-29 Be Careful What You Wish For by John Mauldin of Millennium Wave Advisors
Q3 GDP numbers were unimpressive, and it would not surprise Mauldin to see GDP growth be closer to 1% in the 4th quarter, unless we start to see evidence of more inventory building. That is not good for jobs, personal income, tax collections needed to cover deficits at all levels, or consumer confidence. A further threat is posed by large numbers of people whose 99 weeks of unemployment will soon expire. Republicans face big challenges once they gain power, and Mauldin says a VAT is the only way to reduce budget deficits.
2010-10-24 The Subprime Debacle: Act 2, Part 2 by John Mauldin of Millennium Wave Advisors
Buyers of mortgage-backed securities may be able to join together and force issuers to buy back those securities, if the loans they contain are defective. This is further complicated by the fact that some of those buyers were non-US entities. Bank of America is badly exposed through its acquisition of Countrywide, as are "dozens" of other banks.
2010-10-16 The Subprime Debacle: Act 2 by John Mauldin of Millennium Wave Advisors
The housing market has not yet begun to recover, and it is not only going to take longer but the decline in prices may be greater than many have forecast. But the real problem is the foreclosure crisis, where banks have foreclosed in situations where they had no right to do so. Several options exist for resolution, including sorting out the details of each case in a legal forum. A more ominous outcome would be to force investment banks to buy back securities with faulty titles.
2010-10-09 The Ride of the Keynesian Cowboys by John Mauldin of Millennium Wave Advisors
Mauldin reviews the just-released employment statistics, concluding that the "job picture is terrible." Add to that forecast weak GDP growth, lack of consumer spending, and feeble credit demand, and the Fed is left with one more "bullet" - QE2 - which is advocated by "Keynesian Cowboys" at the Fed. Others at the Fed, though, have warned about the unintended consequences of a possible QE2, and Mauldin doubts it will "work."
2010-10-02 The Morality of Chinese Growth by John Mauldin of Millennium Wave Advisors
Mauldin provides highlights from a recent conference. John Hofmeister is the former president of Shell Oil. He paints a very stark (even bleak) picture of the future of energy production in the US unless we change our current policies. David Rosenberg argues that GDP growth has been helped largely by inventory rebuilding, which is not sustainable. The analysts at GaveKal discuss the tension between Chinese policies toward economic growth and the social welfare it provides for its citizens.
2010-09-25 Pushing on a String by John Mauldin of Millennium Wave Advisors
The Fed will move forward with aggressive quantitative easing (QE), unless economic growth reaches 1.5 percent to 2.0 percent. The Fed's QE efforts thus far have been ineffective, because funds remain on banks' balance sheets. Future efforts would likely lower interest rates or possibly devalue the dollar, but it is unlikely it will stimulate growth.
2010-09-18 The Chances of a Double-Dip by John Mauldin of Millennium Wave Advisors
This commentary features a letter from Gary Shilling on the chances of a double-dip recession. Shilling notes that investors early this year believed that rapid job creation and the restoration of consumer confidence would spur retail spending. A funny thing happened, however, on the way to super-charged growth. In April, investors began to realize that the euro zone financial crisis, which had been heralded at the beginning of the year by the decline in the euro, was a serious threat to global growth. Stocks retreated, commodities fell, Treasury bonds rallied and the dollar rose.
2010-09-11 The Last Half by John Mauldin of Millennium Wave Advisors
Mauldin provides another excerpt from his forthcoming book. He argues that growth in government spending comes at the expense of private sector growth. Fiscal stimulus will not work in the current environment, because we are now at the end of an unprecedented debt cycle. The preferred solution is for a country to grow its way out of debt, but that requires running a trade surplus, which cannot be accomplished by all countries simultaneously.
2010-09-04 The Last Chapter by John Mauldin of Millennium Wave Advisors
Mauldin presents content from his forthcoming book. He reviews some fundamental precepts of economics, focusing on the Keynesian approach the US is taking to revive the economy. He presents data from Woody Brock showing that the US debt may rise by as much as $1.5 trillion per year. Ultimately, he says, the bond market will revolt and interest rates will rise and the results will be very unpleasant. Using taxes or savings to handle a large fiscal deficit reduces the amount of money available to private investment.
2010-08-28 The Dark Side of Deficits by John Mauldin of Millennium Wave Advisors
At the start of each bull cycle, the markets had single-digit P/E ratios, with no exception. No secular bull market ever began with high P/E ratios, even though significant rallies often started from high P/E ratios. The lesson of history is that all periods of high valuations come to an unhappy end. The most significant driver of stock market returns is the valuation embedded in the P/E ratio. We are still in a secular bear market. Valuations, while lower, are still not at what could be called historical cyclical bottoms. Patience is the order of the day. We will get there.
2010-08-21 How We Get Through This Mess by John Mauldin of Millennium Wave Advisors
Don't expect a v-shaped recovery, but GDP may still grow in Q3. Unemployment and deficits will remain high. It is going to be a tough environment for the next 6-8 years. Growth opportunities will be in entrepreneurial ventures that can adapt to this environment and to future unforeseen hurdles.
2010-08-14 The Gulf Oil Spill Disaster by John Mauldin of Millennium Wave Advisors
The ecological destruction from the oil spill that was first feared is not going to be as bad as once thought, for a variety of reasons. It is not good, but it is not the unmitigated disaster it could have been. The government should have allowed certain ships to assist in the cleanup. The ban on offshore drilling should be lifted.
2010-08-07 The Problem With Pensions by John Mauldin of Millennium Wave Advisors
A report just out from the Center for Policy Analysis indicates that state and local pension funds are drastically underfunded. By the authors' calculations, state and local pensions are underfunded by $3 trillion. Pension funding in some states will be required by law to consume 25-30 percent or more of tax revenues. That is going to mean much higher taxes or reduced services. John Mauldin also discusses a possible surprise from President Obama concerning Fannie Mae and Freddie Mac, and provides an economic update on China.
2010-07-31 Are We There Yet? by John Mauldin of Millennium Wave Advisors
The reported Q2 GDP growth was unimpressive. If we take away housing and project slower inventory growth and less government spending, we could see the GDP number for this quarter fall to the 1% range and stay there for the rest of the year. Deflation is a real fear, analogous to driving our economy "without a spare."
2010-07-24 Some Thoughts on Deflation by John Mauldin of Millennium Wave Advisors
We face the deflation of the Depression era, and central bankers of the world are united in opposition. This is due to excess capacity, high unemployment and massive wealth destruction. Deflationary pressures are the norm in the developed world (except for Britain, where inflation is the issue). The US has mild (1 percent) inflation now, but if it trends to deflation, the Fed will react by monetizing the debt.
2010-07-17 The Debt Supercycle by John Mauldin of Millennium Wave Advisors
The Debt Supercycle, as posited by the Bank Credit Analyst, is the decades-long growth of debt from small and easily-dealt-with levels, to a point where bond markets rebel and the debt has to be restructured or reduced or a program of austerity must be undertaken to bring the debt back to manageable proportions. The consequences for each country will be different, and the U.S. is a long way off from "the end." A key point will be the 2014 elections, when critical budget decisions must be made.
2010-07-10 It's More Than Just Birth-Death by John Mauldin of Millennium Wave Advisors
Mauldin examines the methodology used by the BLS when it calculates unemployment. He reviews claims by Jeff Miller of New Arc (which we published on Thursday) that distortions caused by unreported data are greater than those of the birth/death model. Mauldin also discusses a conversation he had with Mohammed El-Erian, who said that unemployment may now be a leading (instead of lagging) indicator of economic growth.
2010-07-03 The Dismal Science Really Is by John Mauldin of Millennium Wave Advisors
Yesterday's unemployment numbers were very bad, and Mauldin explains how they were calculated and the implications of adjustments, such as the birth/death model. Personal income was also down, which is a very rare occurrence. Other indicators, including the money supply, are not indicative of economic growth. The Fed will act aggressively to thwart deflation.
2010-06-26 The Risk of Recession by John Mauldin of Millennium Wave Advisors
The risk of recession is 50/50, but several things could make it less likely: if the expiration of the Bush tax cuts are not as harmful as expected, if those tax cuts are extended, or if there is a pickup in bank lending. The ECRI leading indicators and the M3 money supply numbers are indicating a recession is likely. If there is a recession, it will be deflationary and the Fed will react with another dose of quantitative easing.
2010-06-18 Be Careful What You Wish For by John Mauldin of Millennium Wave Advisors
Governments can fight deficits by cutting spending, but that has the effect of reducing growth, which reduces taxes and income, essentially forcing a recession. This is the situation facing the US. The probability for a recession in the US in 2011 is 50%.
2010-06-11 The Frog in the Frying Pan by John Mauldin of Millennium Wave Advisors
Jonathan Tepper of Variant Perception, a research firm in London, writes this column as a guest contribution. He says that Mauldin's Muddle Through Economy is the product of several major structural breaks in the economy, which have important implications for growth, jobs, and the timing of a future recession: lower GDP growth will lead to more frequent recessions and higher economic volatility; high unemployment rates will be the norm, especially for less educated workers.
2010-06-05 There's a Slow Train Coming by John Mauldin of Millennium Wave Advisors
The question before the jury is a simple one, but the answer is complex. Is the US in a "V"-shaped recovery? Are we returning to the old normal? Mauldin concludes that the fundamentals are too weak to support robust growth, as typically follows a recession. He cites data from the Consumer Metrics Institute Growth Index, which suggests there will be a 2% GDP contraction in the third quarter, which he doubts will happen, but says the consensus 3% seems quite possible. He warns that if we go back into recession, the market on average drops 40%.
2010-05-28 Six Impossible Things by John Mauldin of Millennium Wave Advisors
You can run a trade deficit, reduce government debt and reduce private debt but not all three at the same time. Choose two. Choose carefully. The UK will likely allow the pound to devalue to reduce its deficit, but will face higher costs of imported goods. Greece, in contrast, has no good options, and ultimately will default on its debt.
2010-05-22 The Case for a Fed Rate Hike by John Mauldin of Millennium Wave Advisors
Everywhere there are arguments that we are in a "V"-shaped recovery. And there are signs that in fact that is the case. Today we will look at some of those, and then take up the topic of when the Fed will raise rates. We open the case and look at the evidence. Is there enough to come to a real conviction? Mauldin thinks there is, but concludes that the Fed is "on hold" until 2011.
2010-05-15 Europe Throws a Hail Mary Pass by John Mauldin of Millennium Wave Advisors
This week's $1 trillion EU bailout is analogous to the US TARP program, and represents a "Hail Mary" last-ditch attempt to save the eurozone. The problems in the EU run deeper than government debt; when private debt is included, overindebtedness is even more striking. Mauldin says the prospects for growth in the EU are dim, the euro will go to parity with the dollar, and the EU will dissolve in the next 5-7 years.
2010-05-08 The Center Cannot Hold by John Mauldin of Millennium Wave Advisors
Citing a paper from the Bank for International Settlements, Mauldin says increasing sovereign debt has two consequences - higher interest rates for that debt and lower growth rates for the underlying economies. Growth in sovereign debt at its current rate is unsustainable and poses systemic risks for the global economy. Fiscal austerity is the only solution, and that seems unlikely, particularly in the case of Greece.
2010-05-01 The Future of Public Debt by John Mauldin of Millennium Wave Advisors
Mauldin defends Goldman Sachs, arguing that buyers of the synthetic CDO it created should have been aware of the risks. He then comments on a paper by the Bank of International Settlements (BIS) which analyzes the level of sovereign debt across a number of countries. The BIS says the overall debt levels for these countries, which include many of the G20, are unsustainable, and the US is among those with the worst long-term outlook.
2010-04-17 First, Let’s Kill the Angels by John Mauldin of Millennium Wave Advisors
Provisions in the Dodd financial reform bill will impede angel investing in new ventures. Those provisions are the 120-day waiting period following SEC filing and the increase in minimum wealth requirements for accredited investors. Separately, the problems that Goldman now faces are "the tip of the iceberg," and at least eight other banks will face similar problems.
2010-04-09 Reform We Can Believe In by John Mauldin of Millennium Wave Advisors
Appointments to positions of power in the Federal Reserve system should be independent of the political process and party politics. Credit default swaps should be regulated by requiring that they be traded on an exchange. Commercial and investment banking should be separated, so that commercial banks cannot engage in speculative activity such as running hedge funds. Leverage use by large banks should be restricted. "Fix the big things. Credit default swaps. Too big to fail. Leverage. Then worry about the details. And leave the Fed alone."
2010-04-03 Is This a Recovery? by John Mauldin of Millennium Wave Advisors
"We will likely see a reduction in government spending (from all levels) over the next few years, a really nasty set of tax increases, which will hit small businessmen the hardest, and continued high unemployment, and all of it coming in a weakening economy by the end of the year," says John Mauldin. "I put the odds of a double-dip recession in 2011 at better than 50-50." Mauldin also offers asset allocation advice over a 10-year time frame.
2010-03-27 What Does Greece Mean to You? by John Mauldin of Millennium Wave Advisors
The potential consequences of the Greece debt crisis can be explained by chaos theory, where a small perturbation in one place (the Greek economy) can cause bigger ripples in the global economy. Greek debt is held by European banks, and a Greek default would weaken the European economy. The real crisis, though, is the impending end of a "60-year debt supercycle," which implies many years of deleveraging and a weak global economy.
2010-03-20 The Threat to Muddle Through by John Mauldin of Millennium Wave Advisors
Mauldin criticizes Krugman's call for a 25% tariff on Chinese imports, and instead predicts that China will allow its currency to appreciate 5-7% per year for the next several years. Protectionism, he says, is the biggest threat to global recovery. In defense of his argument, Mauldin says similar tariffs could be imposed if the euro, Yen and the Canadian dollar continue their current trends. The larger problem is the growing US deficit, which must be dealt with in the medium term, or there will be no long term.
2010-03-13 The Implications of Velocity by John Mauldin of Millennium Wave Advisors
Mauldin examines the relationship between the velocity of money, economic growth and inflation. After reviewing the economic theory, he shows that the velocity of money in the US has decreased since the onset of the financial crisis, and attributes this to deleveraging and the pullback from the financial innovations that accelerated the velocity of money, particularly in the 1990s. The Fed has compensated for the slowdown in velocity by increasing the money supply, and Mauldin questions whether the Fed can effectively reduce the money supply once velocity increases.
2010-03-06 Welcome to the Future by John Mauldin of Millennium Wave Advisors
Mauldin reflects on an executive program held by the Singularity University that he recently attended. He discusses the potential for new advancements in robotics, artificial intelligence, nanotechnology, water purification, biotechnology, and several other areas.
2010-02-26 The Multiplication of Money by John Mauldin of Millennium Wave Advisors
Mauldin begins with a review of the situation in Greece, highlighting recent social unrest, and concluding that the most likely resolution will be relief from the IMF. Next, he rejects recent reports that hedge funds will short the euro and cause it to decline relative to the dollar. He then argues that the reported expansion of M0, M1 and M2 money supply is inconsequential (for inflation), because it is more than offset by a decrease in the velocity of money.
2010-02-20 The Pain in Spain by John Mauldin of Millennium Wave Advisors
Mauldin examine the Greek crisis the the potential direction of the euro. Spain, he says, is a more threatening crisis because its debt is much greater than Greece's. "Pay attention to Greece and Spain and especially Japan over the next few years," he says. "Unless the US gets its fiscal house in order, we will be next."
2010-02-13 Between Dire and Disastrous by John Mauldin of Millennium Wave Advisors
Mauldin discusses the Greek debt crisis and the options for resolving it. A Greek default "would bankrupt the bulk of the European banking system," but that is unlikely, he says. He cites Niall Ferguson's recent article in the FT and argues that the Greek crisis is a precursor to other countries facing similar sovereign debt problems.
2010-02-06 A Bubble in Search of a Pin by John Mauldin of Millennium Wave Advisors
Mauldin covers three topics. He digs into the employment numbers and concludes that it is a "mixed bag" - the numbers of unemployed rose but the unemployment rate declined. Looking at the Reinhart-Rogoff book, he argues that Fed policy makers were at fault for failing to recognize the housing bubble. Last, he discusses Greece's fiscal problems in a historical context.
2010-01-30 This Time is Different by John Mauldin of Millennium Wave Advisors
Mauldin begins with an analysis of the reported Q4 GDP numbers, saying that it is not indicative of underlying growth in the economy. He then comments on the Reinhart-Rogoff book "This Time is Different," focusing on the point that governments can survive debt-fueled growth until confidence in them evaporates. He is discusses Greece's fiscal problems.
2010-01-22 Thoughts on the End Game by John Mauldin of Millennium Wave Advisors
"As for financial markets, we have come full circle to the concept of financial fragility in economies with massive indebtedness. All too often, periods of heavy borrowing can take place in a bubbl
2010-01-16 When the Fed Stops the Music by John Mauldin of Millennium Wave Advisors
Some time in the coming few years the bond markets of the world will be tested. Normally a deleveraging cycle would be deflationary and lower interest rates would be the outcome. But in the face of su
2010-01-09 2010 Forecast: The Year of Uncertainty by John Mauldin of Millennium Wave Advisors
"This will be my tenth annual forecast issue. Time has flown by, and I enter a new decade of writing Thoughts from the Frontline. And even as I write about the high level of uncertainty of the curr
2009-12-19 The Age of Deleveraging by John Mauldin of Millennium Wave Advisors
2009-12-12 Thoughts on the Statistical Recovery by John Mauldin of Millennium Wave Advisors
2009-12-05 A Conversation with John by John Mauldin of Millennium Wave Advisors
2009-11-28 Why I am an Optimist by John Mauldin of Millennium Wave Advisors
2009-11-21 Where the Wild Things Are by John Mauldin of Millennium Wave Advisors
2009-11-14 If This Is Recovery... by John Mauldin of Millennium Wave Advisors
2009-11-07 The Glide Path Option by John Mauldin of Millennium Wave Advisors
2009-10-31 Catching Argentinian Disease by John Mauldin of Millennium Wave Advisors
2009-10-24 The Best of Times by John Mauldin of Millennium Wave Advisors
2009-10-17 Muddle Through, R.I.P? by John Mauldin of Millennium Wave Advisors
2009-10-10 Killing the Goose by John Mauldin of Millennium Wave Advisors
2009-10-03 Another Finger of Instability by John Mauldin of Millennium Wave Advisors
2009-09-26 Welcome to the New Normal by John Mauldin of Millennium Wave Advisors
2009-09-19 The Hole in FDIC by John Mauldin of Millennium Wave Advisors
2009-09-12 Elements of Deflation, Part 2 by John Mauldin of Millennium Wave Advisors
2009-09-05 The Elements of Deflation by John Mauldin of Millennium Wave Advisors
2009-08-29 An Uncomfortable Choice by John Mauldin of Millennium Wave Advisors
2009-08-22 The Statistical Recovery, Part Three by John Mauldin of Millennium Wave Advisors
2009-08-15 The Statistical Recovery, Part 2 by John Mauldin of Millennium Wave Advisors
2009-08-08 Six Impossible Things Before Breakfast by John Mauldin of Millennium Wave Advisors
2009-08-02 The Great Reflation Experiment by John Mauldin of Millennium Wave Advisors
2009-07-25 The Statistical Recovery by John Mauldin of Millennium Wave Advisors
2009-07-18 Europe on the Brink by John Mauldin of Millennium Wave Advisors
2009-07-11 Buddy, Can You Spare $5 Trillion? by John Mauldin of Millennium Wave Advisors
2009-06-27 The End of the Recession? by John Mauldin of Millennium Wave Advisors
2009-06-20 This Time its Different* by John Mauldin of Millennium Wave Advisors
2009-06-06 The New, New Normal by John Mauldin of Millennium Wave Advisors
2009-05-30 This Way be Dragons by John Mauldin of Millennium Wave Advisors
2009-05-23 The Paradox of Deficits by John Mauldin of Millennium Wave Advisors
2009-05-16 Faith-Based Economics by John Mauldin of Millennium Wave Advisors
2009-05-09 Green Shoots or Dandelion Weeds? by John Mauldin of Millennium Wave Advisors
2009-05-02 Back to the Future Recession by John Mauldin of Millennium Wave Advisors
2009-04-25 Back to the Future Recession by John Mauldin of Millennium Wave Advisors
2009-04-18 The Trend May Not Be Your Friend by John Mauldin of Millennium Wave Advisors
2009-04-11 Is That Recovery We See? by John Mauldin of Millennium Wave Advisors
2009-04-05 Deep Inside the Dow by John Mauldin of Millennium Wave Advisors
2009-03-28 Why Bother With Bonds? by John Mauldin of Millennium Wave Advisors
2009-03-21 Solving the Housing Crisis by John Mauldin of Millennium Wave Advisors
2009-03-14 The Swiss Start Their Engines by John Mauldin of Millennium Wave Advisors
2009-03-07 The Law of Unintended Consequences by John Mauldin of Millennium Wave Advisors
2009-02-28 Buy and Hope Investing by John Mauldin of Millennium Wave Advisors
2009-02-21 When Rome Burns by John Mauldin of Millennium Wave Advisors
2009-02-14 Time for a Reality Check by John Mauldin of Millennium Wave Advisors
2009-02-07 Thoughts on the Continuing Crisis by John Mauldin of Millennium Wave Advisors
2009-01-31 Trading with the Big Boys by John Mauldin of Millennium Wave Advisors
2009-01-24 Here Comes TARP 3 and 4 by John Mauldin of Millennium Wave Advisors
2009-01-17 The Endgame by John Mauldin of Millennium Wave Advisors
2009-01-10 Forecast 2009: Deflation and Recession by John Mauldin of Millennium Wave Advisors
2009-01-03 2008: Annus Horribilis, RIP by John Mauldin of Millennium Wave Advisors
2008-12-21 I Meant to Do That by John Mauldin of Millennium Wave Advisors
2008-12-14 Things That Just Should Not Be by John Mauldin of Millennium Wave Advisors
2008-12-06 The Velocity Factor by John Mauldin of Millennium Wave Advisors
2008-11-30 The Financial Fire Trucks are Gathering by John Mauldin of Millennium Wave Advisors
2008-11-22 Leverage Is an 8 Letter Word by John Mauldin of Millennium Wave Advisors
2008-11-15 The Economy Gets a Margin Call by John Mauldin of Millennium Wave Advisors
2008-11-08 The Problem With Deleveraging by John Mauldin of Millennium Wave Advisors
2008-11-01 Electing the Janitor-in-Chief by John Mauldin of Millennium Wave Advisors
2008-10-28 How Shall We Then Invest? by John Mauldin of Millennium Wave Advisors
2008-10-18 The Economic Blue Screen of Death by John Mauldin of Millennium Wave Advisors
2008-10-11 Where Do We Go From Here? by John Mauldin of Millennium Wave Advisors
2008-10-05 The Curve in the Road by John Mauldin of Millennium Wave Advisors
2008-09-27 Who's Afraid of a Big, Bad Bailout? by John Mauldin of Millennium Wave Advisors
2008-09-20 Betting on Financial Armageddon by John Mauldin of Millennium Wave Advisors
2008-09-14 Housing: Are We Near the Bottom? by John Mauldin of Millennium Wave Advisors
2008-09-08 Thoughts on the Continuing Crisis by John Mauldin of Millennium Wave Advisors
2008-08-23 It's more than Fannie and Freddie by John Mauldin of Millennium Wave Advisors
2008-08-18 Whatever Happened to Decoupling? by John Mauldin of Millennium Wave Advisors
2008-08-09 A New Asset Class - Part Two by John Mauldin of Millennium Wave Advisors
2008-08-04 The Rise of a New Asset Class by John Mauldin of Millennium Wave Advisors
2008-07-28 Earnings and Mr. Bear by John Mauldin of Millennium Wave Advisors
2008-07-19 The World Will Not End by John Mauldin of Millennium Wave Advisors
2008-07-13 $1.6 Trillion in Losses and Counting by John Mauldin of Millennium Wave Advisors
2008-06-29 The Slow Motion Recession Re-visited by John Mauldin of Millennium Wave Advisors
2008-06-23 Warren Makes a Bet by John Mauldin of Millennium Wave Advisors
2008-06-16 Whip Inflation Now by John Mauldin of Millennium Wave Advisors
2008-06-08 When Bubbles Collide by John Mauldin of Millennium Wave Advisors
2008-05-31 The Problem with the Euro by John Mauldin of Millennium Wave Advisors
2008-05-26 Whither the Price of Oil? by John Mauldin of Millennium Wave Advisors
2008-05-17 The Fed at the Crossroads by John Mauldin of Millennium Wave Advisors
2008-05-10 Why Investors Fail by John Mauldin of Millennium Wave Advisors
2008-05-04 Lies and Other Statistics by John Mauldin of Millennium Wave Advisors
2008-04-28 The Velocity of Money by John Mauldin of Millennium Wave Advisors