Flashman Letters

the BIS still doesn’t like low interest rates - click to link

Those low interest rate u-Zirpers at the BIS are back.

via ftalphaville.ft.com

Run, Don’t Walk, Away From Forward P/Es - Restoration Project

One of the most consistent messages I’ve heard throughout my career is that the market is inexpensive or at least “fairly valued” based on next years earnings. We hear it at heights of euphoria and the depths of despair. I don’t recall ever hearing the consensus or even a vocal minority calling the market overvalued based on forward earnings estimates. In fact, we rarely even hear perma-bears cite high P/Es based on forward estimates as the primary cause for concern. Over a decade with low and often significantly negative returns, how can that be?

via www.valuerestorationproject.com

Click to link- Freakonomics Radio, Hour-long Episode 4: “The Folly of Prediction”

Podcast: Play in new window | Download

via www.freakonomics.com

Nine Reasons Why Spain Is Not Different - click to link thanks iPad

By Edward Hugh

via www.creditwritedowns.com

The Busts Keep Getting Bigger: Why? by Paul Krugman and Robin Wells | The New York Review of Books

Suppose we describe the following situation: major US financial institutions have badly overreached. They created and sold new financial instruments without understanding the risk. They poured money into dubious loans in pursuit of short-term profits, dismissing clear warnings that the borrowers might not be able to repay those loans. When things went bad, they turned to the government for help, relying on emergency aid and federal guarantees—thereby putting large amounts of taxpayer money at risk—in order to get by. And then, once the crisis was past, they went right back to denouncing big government, and resumed the very practices that created the crisis.

via www.nybooks.com

Simon Johnson: Fiscal Contraction and Economic Expansion - NYTimes.com

The general presumption is that fiscal contraction — cutting spending or raising taxes, or both — will immediately slow the economy relative to the growth it would have had otherwise. (Of course, some lawmakers and candidates call for cutting spending and cutting taxes, too. This would not lower the deficit, and, most likely, in the short term it would also lower growth, because the spending cuts will be more contractionary than the tax cuts are expansionary, in part for the reasons discussed below.)

But some studies have found that in particular instances, fiscal contractions — meaning deficit-reduction measures — have been consistent with no deceleration of economic growth. The International Monetary Fund produced the most balanced recent assessment of the available evidence in Chapter 3 of its October 2010 World Economic Outlook, “Will It Hurt? Macroeconomic Effects of Fiscal Consolidation.” (I was chief economist at the I.M.F. but left in August 2008 and had nothing to do with this study.)

via economix.blogs.nytimes.com

When Italy is already priced to wreck the eurozone

It’s a funny old world. In the original ‘why the eurozone will break up’ papers of the 1990s and early 2000s, it was never ever high Greek deficits, or Irish (or Spanish) bank losses going on to public balance sheets that were forecast to destroy the single currency.

via ftalphaville.ft.com

Highly leveraged

A quote from a Wall Street Journal article about the standoff over how soon Lorenzo Bini Smaghi should resign from the ECB board:

“Our understanding is that Mr. Bini Smaghi wants to know where he would work next if he were to voluntarily resign from the ECB,” one French official said.

 Mischievous suggestion: Greek trades unions should send a letter to the IMF, ECB, and European Commission saying that “our understanding is that our members want to know where they would work next if they are to voluntarily accept cuts in their current positions.”  Anyway, it’s good to know that the minds of our European Council betters are on the big issues.

via fistfulofeuros.net

Geithner: Big Banks Spend ‘Huge Amount to Erode’ Dodd-Frank Law - He is also shocked to find out that there is gambling going on at Rick's

Treasury Secretary Timothy Geithner said Wednesday that Wall Street and large banks are spending “a huge amount of money to erode, weaken, walk back” the Dodd-Frank financial overhaul law that was enacted last year. He called on Congress not to weaken or delay the new rules.

via blogs.wsj.com

-"Growing Your Way Out of Debt" Is a Fantasy - 8 steps to ruin

Once a household or nation is burdened with stupendous debt loads and stagnating earnings, "growing your way out of debt" is impossible. The E.U. may succeed in strong-arming Greece into swallowing even more debt, more austerity and higher interest payments, but that will only speed up the self-reinforcing dynamics of insolvency, and guarantee the losses kicked down the road for a few months will be even more devastating.

via www.oftwominds.com