John Mauldin Newsletter

[Lizard]

John Mauldin's writings seem to be guiding the thinking of almost every armchair expert on the economy these days! For anyone who doesn't get these in their e-mail each week, this weeks one pretty much covers his main themes and makes a good read.

http://www.johnmauldin.com/frontlinethoughts/back-to-the-basics

Interested in others thoughts/comments.

[winner69]

Mauldin has in the main been pretty spot on for the last 10 years or so ... and the worry is that for a reasonably optimistic guy he is getting pretty despondent about the future

Mauldin and his mates at Crestmont love talking about secular cycles - and suppose it was their studies that convinced me more than 10 years ago we were in a secular bear market - ie the market cycle where market PEs go from a high to a secualr low - ending when market PEs are well below 10

Fron chart of the day here is where the S&P PE stands now - I think the guy was saying that it is currently at a low not really seen for 10 years and thus the markets are undervalued at the moment and whoopee we shoud see a good increase in the S&P

But if what Mauldin says might happen actually happens that S&P PE will fall below 10 ... ouch .... and thats why many don't really want to read or understand this sort of stuff

Secular bear market to end maybe in 3 to 4 years .... in the meantime be careful and trade the ups and downs (the bull markets and the bear markets within this secular bear market) .... bit like the Phaedrus theory eh ... spooky eh as he would put it

Whauch way will that line go?

[winner69]

Even the man himself Key is worried about the state of the US

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10739223

[h2so4]

Looks like we are not even at the average.

Problem is todays PE's are based on a high "E" which means even average PE's will look expensive.

The 2000 bull market ended at the highest! PE of any in the 20th century.

As corporate profits decline or stagnate it makes sense that the line should head a lot lower and then some.

Did Phaedrus know something????????????.....but then again I think that with markets at their most volitile, surely this would be a TA's banquet.

[trackers]

John Mauldin's writings seem to be guiding the thinking of almost every armchair expert on the economy these days! For anyone who doesn't get these in their e-mail each week, this weeks one pretty much covers his main themes and makes a good read.

http://www.johnmauldin.com/frontlinethoughts/back-to-the-basics

Interested in others thoughts/comments.

Hi Liz,

Thanks for sharing this - I've signed up to the newsletter :) I've read the article twice, and will probably need another couple of goes at it before I make any sort of educated opinion.

I do find the proposition quite interesting that wholesale changes to govt spending and/or taxes could make the economy worse off, long-term, than a gradual change such as growing the deficit by less than the y.o.y rise in GDP

[winner69]

Hope people did not read this weeks letter - if you haven't alraedy don't be tempted

Rather let Belg have a read and pronounce that Mauldin just doesn't get it ... the macros are looking good and the US is awash with cash .... and no way will the markets fall another 20% to 40%

....except for those 40 million who queue up at Walmart at midnight on the last day of the month so they can get their hands on the new months entitlement .... sounds a bit like what Key is organising here!

[Hoop]

Hmmm....and his near 100% prediction of a recession ?? have any effect??

[winner69]

LOL w69 ... 20% from here is possible - 40% from last weeks bottoming is extremely unlikely.

corporates cant keep going on increasing profits from cost cutting (and to some extent raising prices) in the face of falling demand forever can they Belg ..... and punters are now starting to say we are not prepared to pay 15 times earnings (the risk factor) and if PEs fall to about what do we have ..... prob a 40% decline .... even factoring in those mountains of cash

Belg ... be raedy to invest the pile of cash (can't call it a mountain becaue most of it is already in the market eh Belg) you build up in the next year or so at that time .... like previously that is when super returns will be made from the market

In the meantime have fun with a bit of short term trading .... but watch those charts carefully because methinks the fundamental macros mean squidily squat

Anyway whatever you do mate continue to makes heaps .... I thought of you a few weeks ago when I went to that Tutankanem exhibition in Melbourne ... wonder why

[Lizard]

For anyone reading the e-mail from John Mauldin with McKinsey's take on debt deleveraging and looking at this graph of household debt % of gross annual disposable income...
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...might be interested in looking at this one with NZ comparative from the RBNZ web site (http://www.rbnz.govt.nz/keygraphs/fig5.html) too (read the red bars and LHS scale):
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We don't look too different from the UK.

[h2so4]

A parody on debt crises.

http://www.youtube.com/watch?v=Li0no7O9zmE

[Lizard]

I enjoyed the link there, H2SO4.

Found the equivalent chart to above ones for Aussie debt:

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Since this graph, Household debt:disposable income has stayed above 150%, so not as much household deleveraging as the UK yet.

Interesting to also look at it in the graph below, relative to change in net worth and the weighting of property values in that:

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[winner69]

Liz - here's an Irish economists take on the same article .... from an Ireland perspective

Methinks Ireland is well and truly munted in spite of all the shennagins at keeping creditors at bay ....o wonder there has been a surge of Irish immigrants to NZ

He's a pretty good guy that McWilliams fellow .... for an Irishman'

http://www.davidmcwilliams.ie/2012/01/25/private-debt-so-enormous-that-default-is-only-option

[Lizard]

Thanks Winner.

There's some more (older) bits an pieces on Ireland that give some thoughts on the govt debt part:

http://cormaclucey.blogspot.com/2011/10/why-eventual-irish-debt-restructuring.html

...and the one below relates to the reference in there regarding the Stability Programme Update (interesting charts just over half way through show how sensitive debt levels get to small changes in growth rates)

http://www.fiscal.ie/files/IFAC_Presentation.pdf

However, as your article points out, with household and corporate debt so high, they may do it tough to get the growth. They are a surplus country, but still only goes so far.

There's a good site here for getting data-soaked on country-by-country economic (and related) stats. Nice charts too.
http://www.tradingeconomics.com/ireland/indicators

[winner69]

But while we have the smiling assassin looking after us NZ will be OK

Bernard Hickey: False comfort from chief borrowing addict
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10781864

[Lizard]

I think Bernard is doing some populist scaremongering with that one. It should have been written back in 2004 or 2005 when households had entered the more obvious stages of the borrow-and-spend, sending the current account and trade deficits to silly levels. And when the Labour government was committing us to working for families payments and other expenditures in public service that become difficult to reverse. (It's not even just the payments for WFF, but the cost of building new schools to absorb the 13% increase in births over approx 5 years - but I guess we'll see some payback on that investment about the time I retire :cool:). That is the period when the real sell-off in private assets occurred.

Actually, I am a little shocked by the amount of NZ land sold off so glibly in the past two years. "1%" is a bit of rounding down. But the reality is, that land owned by NZ with foreign borrowings, especially when paid for at low rates of return, is just indirectly owned by foreigners anyway.

Yes, government debt is rising. However, I would actually argue that they should delay returning to surplus even further than 2014, so long as the NZ households and businesses continue to pay down debt. The government is the sector best placed to do this and no point throwing us into a recession just to do what has suddenly become "the right thing" in developed economies. The biggest threat facing the government debt levels is the ever-present contingent liability of a banking crisis and resulting need to nationalise, which should be practically unthinkable (but perhaps isn't). It wouldn't really matter if we had govt debt at 30% of GDP or 50% if that happened.

What is good news for NZ is that we are at last generally running trade surpluses. It would be even more promising if we were also running annual current account surpluses, but at least our international investment position has improved relative to GDP. We still have some way to go before we can improve wealth, but at least we are heading in the right direction without too much pain.

As for selling off state assets to reduce debt... it would be interesting to do the numbers on what they sold previously vs what they re-invested in and how those assets have performed. We hear a lot about them selling as though that is all they do... but they clearly also grow and expand assets, e.g. through investments in Air New Zealand, Kiwirail, Kiwibank and, most likely, through increased re-investment into existing assets like Solid Energy. Surely they shouldn't need to keep funding new investments from revenue, but should also have the choice of selling some off to invest in new ones like the rest of us do? More capital into Kiwibank seems likely. Maybe some of the rest gets the Cullen Fund re-started and we buy more overseas assets.

At least most of our land bought by foreigners is staying where it is. In Australia, they dig it up and send it away.

[Hoop]

Similar thoughts...Liz...."...but should also have the choice of selling some off to invest in new ones like the rest of us do?"

..Also...
the worst offenders making up those above charts are the private young up in comers in high end jobs with their $1/2 + Million houses + expensive toys with both couples earning a high income to pay down the very big mortgage (80+% debt)...I haven't got a problem with that...The problem I do have is when these exact same folk blame the Government for those statistics and demand they do something about it.....You have to be a politician or a Reserve bank Governor to do this balancing act...eh?

Today's John Mauldin Newsletter presents an interesting quote(s)....

“...2011 was so difficult because all stocks seemingly moved together. It was as if every S&P 500 company had the same chairman of the board that knew only one strategy, resulting in a high degree of correlation between seemingly unrelated companies."

"“Massive central bank involvement in the markets risks returning us to a de facto centrally planned economy. Those S&P 500 companies all have the same chairman; it is Ben Bernanke because his policies are affecting everybody."

[Snow Leopard]

...At least most of our land bought by foreigners is staying where it is. In Australia, they dig it up and send it away.

Where is the 'like' button on this thing?

[janner]

Bring back a minimum deposit . say 20%.. On ALL items purchased on credit..

Common sense really..

If you can not afford the deposit.. You may not be able to afford the repayments..

[janner]

Liz..

Over approx the last 5 years .. I think that you would find that the birth rate has been higher in immigrants than locally born mothers.

We are known in the Asian community as " The Land of Free Money "..

[Lizard]

Liz..

Over approx the last 5 years .. I think that you would find that the birth rate has been higher in immigrants than locally born mothers.

We are known in the Asian community as " The Land of Free Money "..

Can't see from stats where they were born exactly. But if you look at the fertility rate for different ethnicities (http://www.stats.govt.nz/browse_for_stats/population/births/births-tables.aspx), it was the European fertility rates that rose most between 2001 and 2006, followed by Maori. Pacific Island rates stayed about the same and Asian fertility rates fell.

(Note that those years don't make an ideal match to the WFF, as it was only introduced in the 2004 budget and effective from 2005. Stats only provide records for this measure on a 5 yearly basis. 2011 data should be due soon and might tell more).

To be honest, at least the initial increase in birth rate must have owed more to the other factors than WFF, as births had already risen 8% in 2004 over the low point in 2002.

[winner69]

One of Mauldins mate predicting the end of the world (or just a big downturn) in his weekly column

Liz not to read until you open the 2nd bottle of red .... as somebody said thats good for paranoia

Belg can read for a laugh

I just looked at the pretty pictures

http://www.hussmanfunds.com/wmc/wmc120130.htm

[Halebop]

Can't see from stats where they were born exactly. But if you look at the fertility rate for different ethnicities (http://www.stats.govt.nz/browse_for_stats/population/births/births-tables.aspx), it was the European fertility rates that rose most between 2001 and 2006, followed by Maori. Pacific Island rates stayed about the same and Asian fertility rates fell.

(Note that those years don't make an ideal match to the WFF, as it was only introduced in the 2004 budget and effective from 2005. Stats only provide records for this measure on a 5 yearly basis. 2011 data should be due soon and might tell more).

To be honest, at least the initial increase in birth rate must have owed more to the other factors than WFF, as births had already risen 8% in 2004 over the low point in 2002.

To me the most profound birth metric is the dropping median age. I'd surmise we are simply seeing demographics at work; the children of Baby Boomers are having babies. The spoiler might be the recession...

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[macduffy]

John Mauldin's latest "Thoughts from the Frontline" deals with the USA's problems and makes compelling reading - although possibly not on a relaxing holiday morning!

We all know that USA (and the world) spawn a lot of pork barrels but the folllowing took my breath away. "There are over 3,000 different tax programs that allow for deductions......"

http://www.johnmauldin.com/frontlinethoughts/

[Lizard]

Very long "Outside the Box" e-mail today that contains a long interview between Kate Welling and Dr Lacy Hunt. Lots of good stuff in there, but particularly like this bit:

The Delevering Process: Four Archetypes

1. "Belt Tightening". The most common delevering path. Episodes where the rate of debt growth is slower than nominal GDP growth, or the nominal stock of debt declines. Examples are Finland '91-'98, Malaysia '98-'08, U.S.'33-'37, S. Korea '98-'00.

2. "High Inflation". Absence of strong central banks, often in emerging markets. Periods of high inflation mechanically increase nominal GDP growth, thus reducing debt/GDP ratios. Examples are Spain '76-'80, Italy '75- '87, Chile '84- '91.

3. "Massive Default". Often after a currency crisis. Stock of debt decreases due to massive private and public sector defaults. Examples are U.S. '29-'33, Argentina '02- '08, Mexico '82- '92.

4. "Growing out of debt". Often after an oil or war boom. Economies experience rapid (and off-trend) real GDP growth and debt/GDP decreases. Examples are U.S. '38- '43, Nigeria '01- '05, Egypt '75- '79.

Suggest we might like to opt for an oil boom here in NZ... :)

[iceman]

Very long "Outside the Box" e-mail today that contains a long interview between Kate Welling and Dr Lacy Hunt. Lots of good stuff in there, but particularly like this bit:


Suggest we might like to opt for an oil boom here in NZ... :)

Agree with your suggestion Lizard, but fear we will be a bit like Egypt and it happening around '75-'79 but with a "20" in front as opposed to Egypt's "19". It will take another generation or two to get out of our nation's current pathetic attitude and start elevating economic health of nation and population to the much higher pedestal it should be at than where it is at today :mad ;:.