Daily Investment Interpretations

August 21, 2010

2010-8-21:  In Permanent Link to Bond Madness, Paul Krugman reviews some of the (in his view) nutty justifications given for why interest rates were going to surge by this time in 2010. He suggests that the first of these, the "carry trade bubble", may have cowed the Obama Administration into eschewing an attempt at a follow-on stimulus package at a time when it might still have done some good. Noriel Roubini floated this phantasmagoria back in the November 2, 2009, Daily Investment Interpretations (along with Todd Harrison). For all I know, this unwinding of the carry trade may still  happen, but it would have afforded a very bad justification for raising interest rates last fall. 
    He also mentions that Goldman Sachs estimates that the revised second-quarter GDP will be only 1.1%, and will go downhill from there. 
    Another interesting comment someone made in response to an article is that although earnings are rebounding thanks to increases in productivity, revenues are falling. And rising earnings can't continue very long in the face of falling revenues.
    Marketwatch columnist Nick Godt writes, No, it's not a bond bubble. He explains that stock fund managers watching money pouring from the stock market into the bond market have strong incentives for claiming that the bond market is a bubble. 
    In reviewing some of the links in the right-hand box on this page, I realize that right now, the best investment vehicle we can find may be cash until we see which way the markets are going to break. The markets always climb a "wall of worry", but right now, things appear to be, as the Fed put it,  "unusually uncertain".
    In the interest of balanced reporting, here's an assessment by Howard Gold: Gloom and doom all over again.