Macro Roundup, Feb 18-19
This weekend's Barron's features an interview with the always thought-provoking and entertaining Hugh Hendry – if you haven't seen him skewering Economics Nobel-winner Joseph Stiglitz two years ago on English television, you really should watch it ("Hello? Excuse me, can I tell you about the real world?") I turns out that Hendry was right and Stiglitz was wrong.
There are some choice observations from Hendry including:
The euro is nothing but a gold standard lacking flexibility, and all the onus is on private citizens to take the pain. Eventually, a Greek politician will say, 'Vote for me, and I'll get us out of this system.'
So the steel CDS is 130 basis points, while to insure against default by the French government, I'd be paying the same amount. Which is riskier? A very leveraged steel company that can't tax you? Or a government that can?
I'm a fan of Michael Santoli's Streetwise column; this week's contain an observation that is all too rare among the commentocracy:
Consider statements such as this one by a senior trader, as quoted Friday by the Wall Street Journal: "With Treasury rates where they are, there's no real alternative to U.S. equities." Of course, no investor inhabits an impermeable bubble in which those are the two binary options, as last week's record inflows into investment-grade bond funds show.
This is something that I've been repeating for a couple of years: Simply because equities look like a better proposition than bonds does not mean they are a good absolute value or that investors are forced to purchase them. That seems commonsensical to me, but in a market in which trader-investors' timeframe rarely extend beyond the end of the following quarter, the prevailing logic is that one simply has to own something. That logic can quickly become costly. Don't forget that the next issue of the Real Returns Report appears here tomorrow morning. I'll be discussing why the 10%-11% figure that is always bandied about as the expected long-term returns is overstated, particularly in the current environment.