April 2, 2013

AM Summary: Krugman vs. Feldstein

1. John Hussman: We should have already learned how this will end
Overvalued, overbought, overbullish. When in history have we seen the Shiller P/E (S&P 500 divided by the 10-year average of inflation-adjusted earnings) above 23, the S&P 500 over 60% above its 4-year low and 10% above its 52-week average, with investment advisory bears below 20% for at least two weeks running?

2. BCA Research says Chinese growth recovery is still on track
 The key drivers behind China’s growth recovery are still largely intact.

3. Paul Krugman vs. Martin Feldstein on the bond bubble 'brouhaha'
Why do we have large fiscal deficits? Because of the collapse of private demand, especially housing. The private sector’s financial surplus has surged; government deficits have risen in counterpart through the operation of automatic stabilizers, mainly revenue but also unemployment insurance and other safety-net programs.

This is a situation of weak demand for funds, not strong demand; it’s a situation in which you would expect bond yields to be lower than normal, not higher — and you’d be right.

4.  Martin Feldstein on the bond bubble (this is the article Krugman refutes)
Long-term interest rates are now unsustainably low, implying bubbles in the prices of bonds and other securities. When interest rates rise, as they surely will, the bubbles will burst, the prices of those securities will fall, and anyone holding them will be hurt. To the extent that banks and other highly leveraged financial institutions hold them, the bursting bubbles could cause bankruptcies and financial-market breakdown.

5. 10 things financial advisers won't say
 Many adviser truly look out for their clients. Many others truly look out for themselves. Which kind have you entrusted your life savings to?