Prieur’s Readings (July 6, 2009)

This post provides links to a number of interesting articles I have read over the past few days (while touring through Europe) that you may also enjoy.

• William Pasek (Bloomberg): “Buy China” pesticide withers those green shoots, July 3, 2009. So you think China’s 6% growth will power a global recovery. Think again.

• Nouriel Roubini (Forbes): Will the global warming bill cool the global economy? July 2, 2009. Assessing the effects of cap-and-trade.

• Paul Krugman (The New York Times): That ’30s show, July 2, 2009. O.K., Thursday’s jobs report settles it. We’re going to need a bigger stimulus. But does the president know that?

• Mohamed El-Erian (Financial Times):American jobs data are worse than we think, July 2, 2009. What if the US unemployment rate rises above 10% and stays there for an extended period? This is a question that is not being asked enough, even though it entails yet another historical anomaly that will further complicate policy formulation and open it up to greater political interference.

• Andy Xie (China International Business): Taming the beast, July 2, 2009. The Fed will probably talk tough on inflation soon and may raise interest rates before the end of the year. Though its action may calm bond vigilantes, it could spark liquidity panic among commodity and stock market speculators. A market crash is likely. The Fed may need to respond to the liquidity panic with soothing words and more purchases of Treasuries. It will have to skillfully navigate between bond vigilantes and liquidity junkies.

• Desmond Lachman (The American): Does Bernanke deserve a second term? July 2, 2009. The Federal Reserve chairman’s tenure has been checkered at best. There must be other candidates who could be expected to do a better job.

• John Authers (Financial Times): Long view - becalmed equities, July 3, 2009. As 2009 reaches its halfway point, stock markets are back where they began. In the US, the S&P 500 is down 0.7% since New Year’s Eve and has recently been becalmed. Western Europe fits the same pattern, with the UK’s FTSE 100 down 4.5% in sterling terms (but up in dollar terms), while the FTSE Eurofirst 300 is up 1.3%. Only in Asia has there been a more emphatic shift to optimism, with Japan’s Nikkei 225 up 11.5%, while Shanghai’s composite index is up a stunning 68%.

• Rob Arnott (Financial Times): Reversion to mean, but what mean? June 28, 2008. Mean reversion is one of the most powerful and reliable drivers of long-term capital markets returns. It’s like a pendulum. When valuation levels get high (or low) by historical standards, they’ll usually swing back to past norms, often overshooting as a pendulum might. To be sure, mean reversion works its magic slowly, so one can often wait a long time for values to revert. One challenge with relying on mean reversion is that we don’t know what the “right” mean is.

• Tony Barber (Financial Times): EU faces permanent loss of output, July 2, 2009. Europe is likely to suffer a permanent loss in potential economic output as a result of the global crisis, and government finances will be under pressure for years to come, according to a new European Commission study.

• Zbigniew Brzezinski (Financial Times): Russia must re-focus with post-imperial eyes, July 1, 2009. The financial crisis has made the Russian elite aware that, for the first time, the country’s well-being depends on the well-being of the outside world and especially of America.