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[26 Oct 2010 | No Comment | ]

A prominent investment story in last Friday’s Wall Street Journal said that so far in 2010 Bridgewater Associates, a Connecticut-based hedge fund run by Ray Dalio, had racked up a 38% return.

But that’s not what got our attention. What got our attention was the “hook” – the central idea that made the story worth the WSJ’s time: that Bridgewater was a “Big Bear” and achieved its large return with a “wager that the U.S. economy would be in worse shape than many expected.”
Being bearish is cool these days. …

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[7 Oct 2010 | 8 Comments | ]

“In the year 1000, the average infant could expect to live about 24 years. A third died in the first year of life. Hunger and epidemic disease ravaged the survivors. By 1820, life expectation had risen to 36 years in the west, with only marginal improvement elsewhere. After 1820, world development became much more dynamic. By 2003, income per head had risen nearly ten-fold, population six-fold. Per capita income rose by 1.2 per cent a year: 24 times as fast as in 1000-1820. …

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[29 Sep 2010 | One Comment | ]

Last week, the Federal Reserve said that it was “prepared to provide additional accommodation if needed to support the economic recovery.” This was a signal about the potential for more Quantitative Easing (QE).
The original QE took place between September 2008 and mid-2009, when the Fed’s balance sheet ballooned from $900 billion to roughly $2.4 trillion. Now, some are calling for QE-2, with a few market participants calling for another trillion dollars. This would be a colossal mistake.
Quantitative Easing does not boost real economic activity or inflation – …

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[23 Sep 2010 | No Comment | ]

In the spring of 2009 (as the Panic of 2008 was subsiding), the consensus forecast a “new normal” real GDP growth rate of 2% or less in the second half of 2009 and first half of 2010. We were forecasting 4%. As it turns out, our optimism caused us to overshoot by exactly the same amount as the consensus’s pessimism undershot – real GDP actually expanded by 3%.

Fast forward to mid-2010 and the consensus is still forecasting 2% real GDP growth, with some of the “double dip” crowd …

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[6 Sep 2010 | No Comment | ]

W hy do you work? It’s not a silly question to ask on Labor Day. While some fortunate people will respond that they work because they love what they’re doing, most will say they work to make money to support themselves and their family.

It’s worth thinking about why we work on this Labor Day holiday. No one forces us to get up in the morning, travel on the crowded roads or trains to get to our jobs. Yet we do it and we are mostly grateful to be employed.
But let’s …

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[27 Aug 2010 | One Comment | ]

Guess what? The Washington Post says Obama advisers are looking to Ronald Reagan for “comparison and inspiration.” The Post says both presidents had, “big and bold plans – Reagan with massive tax cuts, Obama with a massive stimulus package and national health care. Reagan’s goal was to shrink government. Obama’s efforts have enlarged government.”

A deep recession knocked Reagan’s approval rating down and Republicans took a beating in the 1982 mid-terms. But he won a landslide second election in 1984 anyway.
President Obama hopes to repeat this feat and …

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[24 Aug 2010 | No Comment | ]

The following are facts, based on the government’s own figures.

Obama’s stimulus, passed in his first month in office, will cost more than the entire Iraq War — more than $100 billion (15%) more.
Just the first two years of Obama’s stimulus cost more than the entire cost of the Iraq War under President Bush, or six years of that war.
Iraq War spending accounted for just 3.2% of all federal spending while it lasted.
Iraq War spending was not even one quarter of what we spent on Medicare in the same time frame.
Iraq …

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[18 Aug 2010 | No Comment | ]

Politics and economics don’t mix well. When unemployment is high, no politician in their right mind would say “things are getting better” – even if they are. And when your party is out of power, no matter what the economy is doing, it’s always good to point out some data, or forecast, or sector that is not doing well. As a result, there is no political constituency for economic optimism and this has created an awfully pessimistic environment.

Add to this political quagmire the largest pool of …

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[12 Aug 2010 | No Comment | ]

Christina Romer, the Chairwoman of president Obama’s Council of Economic Advisers has announced her resignation. While some people say her departure is a sign of deep divisions in the Obama team, we take her comments, about getting along with Larry Summers and enjoying every minute of her tenure, at face value. You, of course, can decide for yourself.
Romer’s infamous forecast that the $800 billion Obama stimulus bill would keep the unemployment rate at or below 8% will go down in history as one of the worst by any …

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[10 Aug 2010 | No Comment | ]

From Seeking Alpha
The American Economic Review published a 39 page research article, titled “The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks.” I have quoted from the publication here:
This paper investigates the causes and consequences of changes in the level of taxation in the postwar United States. Our results indicate that tax changes have very large effects on output. Our baseline specification implies that an exogenous tax increase of one percent of GDP lowers real GDP by almost three percent… and that [capital] investment …