CFA Conference: Kaletsky, Ritholtz, Rosenberg, Mauldin

If you don’t read The Big Picture, by Barry Ritholtz, you should. Breakfast with Dave is a terrific daily email economic report by David Rosenberg. The day it became a pay-for service was truly sad. I worked with him at Merrill — he’s an excellent economist.  Anatole Kaletsky was  a columnist and Principal Economic Commentator for The Times (London). He now runs GaveKal full-time and is also the author of Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis.  And if you don’t read John Mauldin‘s weekly email, Outside the Box, you should. His books are worthwhile too. That’s the opening panel at the CFA Institute Conference today.  It’s a very good one.

My session notes follow.  As always, these are at-the-time notes.  I make no guaranty as to their accuracy or completeness.


  • “Lots I can’t control.”
  • Focuses on what he can control.
  • Secular bear market since 2000, should end sometime between now and 2018 or so; trying to be ready when the next secular bull starts.
  • Analysts generally wildly wrong — we’re bad forecasters.
  • We miss a lot today by focusing so much on the future.
  • Why is anyone surprised that the French elected a socialist? — European banks have not had to suffer austerity; their debts have been covered.
  • Tech and other start-up stuff coming are astonishingly positive and bullish (once we get past the current valley).
  • Fed is already involved in bailing out Eurozone banks; expect it to continue (even if the appetite isn’t strong).


  • “In these markets, I pray a lot.”
  • “Austerity” is a dirty word, but it hasn’t really been tried.
  • Principal concern in Europe — political cohesion is unravelling (that was a key hopeful point).
  • Expects more velocity and volatility.
  • Eurozone, China and USA all in trouble.
  • “Fiscal cliff” is real and dangerous (the results of kicking the can down the road).
  • If if the can keeps getting kicked, GDP growth still poor.
  • Global deleveraging cycle — central banks will keep rates down and the yield curve will stay steep.
  • Fed tightening cycle probably 5-10 years out.
  • Once the credit card is maxed out, how can one get on a “growth path”?
  • The only monetary union that has succeeded historically is the U.S.
  • Gold now trades less like a commodity and more like a currency; thinks it will peak at around $3,000.
  • Fiscal crisis will hurt emerging markets (Mauldin thinks it will help — more self-sufficiency).


  • “The world out there looks very grey to most, but it looks pretty bright to me.”
  • Lots of focus on “somewhere else.”
  • Volatility between pretty defined parameters.
  • Eurozone has problems, but the U.S. is the driver, and the U.S. outlook is pretty positive (pulling out of the recession) even though expectations are highly negative.
  • The U.S. bond market is the most dangerous asset class in the world.
  • Expects the (steep) yield curve to steepen further (long-bonds could lose 20% cash without the Fed doing anything).
  • The main (and most relevant) uncertainty is the situation in the U.S.
  • Not that worried about Europe — economically untenable situation is becoming politically unsustainable, so it will have to change and either the Euro will break up or something else (perhaps a bank bail-out scheme on a Euro-wide basis), but that is the road to recovery, previously thought not-do-able.
  • Germany will not allow itself again to become the pariah of Europe.
  • Euro countries and entities may not be able to borrow from the capital markets, but can go to their central bank.
  • The dollar is the least ugly in an ugly contest (all panelists agree).
  • Thinks we’re in a secular bull market (since 1989 — Berlin Wall, internet, Tiananmen Square, Euro invented).


  • “The only good thing that will come out of the debt crisis is that the French will get theirs.”
  • Today it’s all Greece all the time; it will adjust to all France all the time.
  • Countries will leave the Euro because they are tired of (untried) austerity.
  • “Europe is a tinderbox looking for a match.”
  • French banks are crucial but capital is imploding.
  • “Japan is a bug in search of a windshield.”
  • Terrified by the JOBS Act, even before FINRA and the SEC writes the rules.
  • Japan is imploding and dying.

Krugman v. Summers

Felix Salmon has published an interesting summary of a debate in Canada last night featuring Paul Krugman and Larry Summers (more here, herehere and here).  The question presented was whether “North America faces a Japan-style era of high unemployment and slow growth.” Krugman thinks so while Summers does not.  As described by Salmon, the heart of the dispute was as follows.

They both quoted Keynes as diagnosing “magneto trouble” — the engine of the economy is broken, and it needs to be fixed. Summers has faith that, in Churchill’s phrase, “Americans can always be counted on to do the right thing, after they have exhausted all other possibilities” — the right thing, here, being to fix the magneto with expansionary fiscal and monetary policy. Krugman, by contrast, sees political gridlock as far as the eye can see, and says that it doesn’t matter how innovative or philanthropic or demographically attractive the U.S. is — if you don’t fix the magneto, the car won’t start, and America’s magneto ain’t gonna get fixed any time soon.

Not surprisingly, I think they’re both wrong and think that David Rosenberg (who was aligned with Krugman for the purposes of the debate) is much closer to the truth than his partner is.  Krugman remains convinced that a the problem with the stimulus implemented so far is that it wasn’t nearly extensive enough.  In his view, much greater borrowing and spending would fix what ails the economy (to be fair, I agree with Krugman that political gridlock will make any solution requiring a political contribution likely to fail). As he wrote in The Return of Depression Economics and the Crisis of 2008, “A recession is normally a matter of the public as a whole trying to accumulate cash (or, what is the same thing, trying to save more than it invests) and can normally be cured simply by issuing more coupons.” 

The question, then, is if this time is “normal” or if the problem is so severe that a few “coupons” won’t do the trick.  Rosenberg is in the “so severe” camp.  He thinks that we’re at the beginning of a massive and worldwide deleveraging that will be necessary before we see substantial economic improvement.  In his view (and that of people like Ken RogoffSteve Landsburg, McKinsey and me), you can’t fix an over-indebted economy by piling even more debt onto it. 

We simply cannot expect people to start spending more when (a) they’re trying to get themselves out of hock; (b) they continue to perceive themselves as financially at risk; (c) the house they have (which may be underwater) cannot be expected to appreciate nearly enough to bail them out; and (d) they keep hearing and seeing why they need to be saving more for the future (especially for retirement) rather than spending.