Investment strategies in the current economy

[TexTushHog]

Captain Midnight, your first paragraph is partially correct. However, Keynes would not advocate cutting back government spending even if there was a structural debt in times of recession. You've got to bite the bullet and stimulate demand anyway. Indeed, the fact that long term interest rates are at historic lows show that we're nowhere close to our borrowing capacity (a fact which also shows that ..'s worry about U.S. and Chinese money supply issues are oversold, at best).

The rest is half truths. Yes money supply issues aggravated the spending cuts, but a recent study by Francois Velde shows that employment, unions, etc. had almost nothing to do with the issue.

http://www.chicagofed.org/digital_as...art2_velde.pdf

His data driven conclusion was it was equal parts fiscal policy and monetary policy. The rest of what you post is Austrian/Chicago school revisionist history.

[Tiny]

TexTushHog, How are you investing in Peru? India? I thought only foreign institutional investors could buy on Indian exchanges.

[pjorourke]

Laws are for little people. TTH is a big person.

[TexTushHog]

Originally Posted by Tiny

TexTushHog, How are you investing in Peru? India? I thought only foreign institutional investors could buy on Indian exchanges.

I didn't say I was investing in Peru, but I have been sorely tempted. I have an acquaintance from Peru and have been very impressed with their performance lately and their outlook going forward. I've looked at two ETFs. The first is SPDR S&P Emerging Latin America (GML). The second is IShares S&P Latin America 40 Index(ILF). Neither is Peru specific, but both have a good bit of Peru exposure. IShares does have a Peru specific ETF, (EPU) if you're interested. It's very heavy on commodities, however.

You will also find that there are at least three India specific ETFs. I like iPath's India ETF (INP) best just because it has the least exposure to energy, which I have ample exposure to as a royalty owner. You will also find that there are now some India specific mutual funds, including one by Matthews (MINDX), the same folks who run the highly regarded Matthews Pacific Tiger Fund (MAPTX), a fund that I've held for a number of years.

However, you should note that any single country, or even regional exposure type investment (including all U.S.) is fairly risky. Diversification is the key to long term success.

[TexTushHog]

More on the coming European double dip recession/depression:

http://www.thedailybeast.com/blogs-a...he-us-economy/

[pjorourke]

Yeah TTH, we need some more shovel ready projects.

[macksback]

Originally Posted by pjorourke

Yeah TTH, we need some more shovel ready projects.

Thats sad and funny.

[Texas Contrarian]

Originally Posted by TexTushHog

Keynes would not advocate cutting back government spending even if there was a structural debt in times of recession. You've got to bite the bullet and stimulate demand anyway.

No you don't. Piling even more government spending on top of already very large structural deficits will just add to the problem. You failed to respond to my statement that Japan's practice of doing just that has not worked, and to the statement that the U.S. economy bounced back from the severe recession of 1920-21 even though we dramatically cut spending as a policy response. How would Paul Krugman explain that?

Originally Posted by TexTushHog

Indeed, the fact that long term interest rates are at historic lows show that we're nowhere close to our borrowing capacity...

It shows no such thing. The reason long-term interest rates are so low is primarily due to looming sovereign debt crises in Greece and a number of other countries, resulting in large quantities of international capital seeking (relatively) safe haven in dollar-denominated U.S. Treasuries. An additional factor is the presence of massive quantities of QE, which drives long-term rates down. That's obviously not sustainable forever. The world does not have an unlimited appetite for Treasury issuance, and if we continue to pile on trillions of dollars more debt, we are going to find that one of these days a Treasury auction is going to go very badly. I believe that is very likely to be our next crisis.

Originally Posted by TexTushHog

...Yes money supply issues aggravated the spending cuts...

What in the world does that mean? How do money supply issues "aggravate spending cuts?" Judging from your previous posts, I'm guessing that you would like to make the case that the 1937-38 recession was largely caused by spending cuts, but the Velde paper you linked (which makes a number of very interesting points, by the way) makes no effort to present such a case. Indeed, it focuses on tax policy as the contributing fiscal factor, not spending cuts (which as I noted earlier were very small). The paper notes that income tax revenue grew by 66% from 1936 to 1937, and that the average marginal tax rate for incomes above $4,000 "almost doubled, from 6.4% to 11.6%" That's a rather large tax increase in anyone's book, and hardly anyone would try to claim that it didn't exacerbate the recession to a significant degree.

Velde also notes that the Roosevelt administration became "increasingly vocal against economic royalists", and that its activities "played a psychological role in increasing uncertainty about the profitability of investment." (Sounds like what's happening today, doesn't it?)

It's been said that optimism and what's been called "animal spirits" plays an important role in generating prospects for economic growth. No less a Keynesian than J. M. Keynes himself said that!

Originally Posted by TexTushHog

More on the coming European double dip recession/depression:

http://www.thedailybeast.com/blogs-and-stories/2010-10-22/uk-spending-cuts-wont-help-the-us-economy/

Auerback is a far-left economist who continually rails that the $800 billion "stimulus" package was much too small, and that we need a massive new one. He's in the Krugman camp on that issue, and it's becoming an increasingly lonely place as more and more people are beginning to realize the intellectual (as well as literal) bankrupcy of that economic doctrine.

Originally Posted by TexTushHog

The rest of what you post is Austrian/Chicago school revisionist history.

No it isn't. It's what actually happened.

[TexTushHog]

Captain, I understand your position. And you can repeat it until you are blue in the face. I don't agree with it. And neither do economist far brighter than you. Joseph Stiglitz leaps to mind.

[Texas Contrarian]

Originally Posted by TexTushHog

Captain, I understand your position. And you can repeat it until you are blue in the face. I don't agree with it. And neither do economist far brighter than you. Joseph Stiglitz leaps to mind.

Classy, Tush.

But then hurling cheap insults is sort of your style, isn't it? Didn't you post a couple of months ago that I was "mired in ignorance?" Why, yes, I do believe you did!

(Of course, it must have been a little embarrassing for you when I pointed out that you were completely wrong and linked the data to prove it. Nothing like throwing a boomerang and watching it come back and smack you in the face!)

By the way, for those not familiar with him, Stiglitz is another left-wing economist who believes in massive government intervention and stimulus packages, even though history has shown convincingly that they almost never work as intended.

Don't equate left-wing status with intelligence and don't derogate those with whom you disagree. It just makes you look like an ignorant fool.

[..]

Originally Posted by Camille

Yes we have seen a deceleration in growth, but less so at the industrial than the consumer level. Construction of new buildings throughout the rest of world has and will continue to amble along. Steel prices in the rest of the world are about 15 percent more than the US. Given that the U.S. imports 20 percent of its steel every year, the US can't produce enough to satisfy domestic demand even in a recession. So if steel prices in the U.S. are below the rest of the world, why would anyone export to the US? They wouldn't. Domestic steel prices are going to have to be taken a lot higher. On top of that, US inventories are at a 10-year low which means that if demand does begin to spike inventories will have to be built. Either way, Steel looks like an investment worthy of consideration...no?

*grin* so you'd like to transform from call-girl to put/call-girl!? ;-)

Srsly, what brings you to steel?

[Clerkenwell]

Keynes, Marx, Jesus, the Founding Fathers, Elvis, Reagan (author of the famous economics text 'Das Reaganonics - economics for dummies by dummies') - yeah, yeah, let's have a 'What would [insert name of long-dead authority] do?' assertion session when we tire of the hard thinking necessary to address today's problems.

So much easier to sloganise by reference to the ideas associated with a corpse in possession of a big reputation who can't (conveniently) join the debate. If he did, $10 (or Euros if you're really worried about the EU) says he'd be wary of simplistic application of his own work to a time and context wholly different from his own.

We binged on debt for thirty years, financing consumption and not enough investment. The state became bloated and flaccid. Our addiction to debt became so acute, we took to borrowing from a centrally controlled Marxist / Maoist state.

So, the smart guys suggest we fix the problem by....borrowing more!!!

[Texas Contrarian]

Originally Posted by Clerkenwell

So, the smart guys suggest we fix the problem by....borrowing more!!!

Well, why not?

That's been working so well for a number of European countries, especially Greece. Why can't we keep the economy on what amounts to a caffeine and sugar high indefinitely by pouring in trillions more borrowed or printed dollars? I just can't imagine that there could be much downside risk associated with that.

Besides, why make politically tough decisions when there are elections to be won and constituencies that need to be restimulated?

Getting back to investments, a couple of the smartest private equity managers I know are forming entities for the purpose of investing in productive farms. Boring stuff. Wheat, soybeans, etc. But they feel that the long-term future of agricultural commodities is very bright. I agree.

I know others who are very bullish on copper, noting that the Chinese have stockpiled fairly large quantities as a strategic investment and in anticipation of demand created by construction projects over the next 10-20 years, and that they are likely to keep doing so from time to time.

If you consider taking a position in copper, I might suggest that you refrain from the temptation of trying to get in on a zero-cost basis. That didn't work out well for this guy:

http://www.cnn.com/2010/CRIME/10/24/...pt=P1&iref=NS1

[pjorourke]

Originally Posted by Clerkenwell

So, the smart guys suggest we fix the problem by....borrowing more!!!

Excuse me for quoting another dead guy:

Insanity: doing the same thing over and over again and expecting different results.
Albert Einstein

[Texas Contrarian]

Originally Posted by pjorourke

Excuse me for quoting another dead guy:

Insanity: doing the same thing over and over again and expecting different results.
Albert Einstein

PJ, why should any of us pay attention to what you have to say regarding this subject? You may be very successful in your chosen field, but you are obviously not a left-wing economist like Krugman or Stiglitz.

Therefore you cannot possibly be very smart.