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I wanted to point out that the loon of the moment, Harold Camping is now hitless after two at bats.

The religious zealot/jackass made a similar end of world prediction in 1994, which if memory serves failed to come to pass.

And it is an otherwise delightful evening, no Armageddon anywhere in sight . . .

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Previously:
Waiting for the End of the World (November 27th, 2010)

All for One Euro and One Euro for All?
By John Mauldin
May 20, 2011

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Economic versus Political Theory
Trichet Says “Non!” Again
What Will the EU Do?
All for One Euro and One Euro for All?
We’re Off to Europe

I have been doing a lot of reading this week, and today we look at some of the thoughts that keep coming to my mind. We’ll think about the declining importance of economic theory (which is a tragedy) and then cast our eyes to Europe, where a truely tragicomic drama is being performed. Who needs the movies when you have the EU? There is a lot to talk about.

But first, some of my thinking has been deeply colored by some recent Conversations I have had with Neil Howe, Lacy Hunt, Dylan Grice, and George Friedman. Those audios and transcripts will soon be on the Conversations website, and others will join them shortly.

Conversations with John Mauldin is my subscription service, where I offer subscribers audio and transcripts of conversations I have with thought leaders about the topics of the day. It is just as if you were sitting at the table with us, listening in on our exchange. The service has been very popular, and the reviews are quite good. And the education you’ll get, the ideas that are generated, will help you as you create your own investment strategy.

You can go to http://www.johnmauldin.com/conversations/ and type CONV in the coupon code to get a discount. And the Conversations I am lining up for later this summer will be just amazing, I assure you! Now, let’s jump into the letter!

Economic versus Political Theory

Speaking of conversations, Dr. Woody Brock called me to say very nice things about my latest book, Endgame (www.amazon.com/Endgame). He used words like tour de force. Coming from Woody, who has one of the more powerful intellects I know, it made my day. Woody has so many degrees. He is a master (and the doctorates that come with them) of game theory, economic theory, and political theory. His multidisciplinary approach to markets is a thing of beauty to listen to; and since I had him on the phone, listen I did. It triggered the following thoughts.

I remember it was not so long ago when I was asked a question about how some government policy would affect the stock market. The question was in the context of which presidential candidate would be better. My answer was that presidents get way too much credit if the stock market goes up and way too much blame if it doesn’t. Bill Clinton got elected at a very good time to be elected, as did Reagan. Carter didn’t. If Gerald Ford had won, the economy would still have experienced turmoil and high inflation. It was Volker who made the difference, and then Greenspan’s (and now Bernanke’s) incessant easing. And Congress and their rule making, plus the (insert your favorite expletive) bureaucracies, have much more influence on the economy in the long run than presidents. It is the same in most democracies.

That is why, although we pay attention to politics, including Congress, we run models on our investments. We worry about long-term valuations, inflation/deflation, currencies, etc. Our primary tools for thinking about our investments are economic and financial tools, flawed though they may be. As business people and entrepreneurs, we are more focused on executing our business plans than worrying about politics, although one does pay attention to what they are doing, as regulations can change our plans. As a value investor, I want to know how the executives of a company are going to create cash flow and use that money to grow the business. When I invest in biotech, I want to think about the intellectual property and demand. And so on.

But all that is changing. I mentioned to Woody that it seems like we have to pay more and more attention to politicians and what they are doing and less and less to our economic theory. But that is the nature of the Endgame. And this is not just in the US, but all over the world. The choices that voters make, and then the things the politicians do, are becoming ever more important. Those choices can mean the difference between Muddle Through and a recession here and there, a full-on Depression 2.0, or even hyperinflation in some countries, with voters (and most assuredly politicians!) not thoroughly understanding the unintended consequences of their reactions.

Woody responded that it is now more about political and game theory than economic theory. How do politicians work through the trade-offs they will be forced to make? Can they even make them? Let’s turn our eyes back to Europe to see what happened just this week.

Trichet Says “Non!” Again

I wrote sometime last year about a speech that Jean-Claude Trichet gave last May, and said:

“On Thursday of last week Jean-Claude Trichet, president of the European Central Bank, said three times “Non! Non! Non!” when asked in a press conference if the ECB would consider buying Greek bonds. His exclamation was accompanied by a forceful lecture on the need for eurozone countries to get their fiscal houses in order, some of which I quoted in last week’s letter. Trichet was remonstrating about the need for the ECB to remain independent, and was rather definite about it.

“Then on Sunday he said, in effect, “Mais oui! Bring me your Greek bonds and we will buy them.” What happened in just three days?

Read the rest of this entry »

Harold Camping on Larry King Live “1994?” Pt 1/3

Harold Camping on Larry King Live “1994?” Pt 2/3

Harold Camping on Larry King Live “1994?” Pt 3/3

Based on yesterday’s ironic Game Theory post (End of Worlders: Classic Game Theory Error), I have a few quotes in a Reuters column.

Like the post, they are totally tongue-in-cheek. Unfortunately, sarcasm really fails to come across in print. Instead, the speaker looks like a humorless ghoul (that would be me).

Here is the relevant excerpt:

“A U.S. Christian radio network has been creating a stir with predictions an earthquake will shake the world on Saturday (May 21), sweeping the righteous to heaven and leaving others behind to be consumed in a ball of fire in October.

It left some on Wall Street on a relatively quiet day of trading to ponder the strategy to end all trading strategies.

“The end of the world trade is a sucker’s bet because if you’re right, well, your counterparties are dead and you have nobody to collect from, and if you’re wrong you owe a lot of money,” said Barry Ritholtz, CEO and director of equity research at Fusion IQ in New York.

But just for the sake of discussion, Ritholtz wasn’t too keen on the housing market, since land would hardly be at a premium.

“It would be terrible for housing prices. It’ll reduce demand and put additional inventory on the market,” he said.”

I find that amusing, but I worry that the cheekiness fails to come across in print . . .

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Previously:
End of Worlders: Classic Game Theory Error (May 20, 2011)

Source:
Judgment Day trade: Sooner than you think?
How do you invest for the end of the world?
Chris Sanders
Reuters, May 20, 2011
http://www.reuters.com/article/2011/05/20/us-apocalypse-investment-idUSTRE74J6Y520110520

The Rapture (in blue) beats “World End May 21″ (red)  — at least on Google Trends. What chance did Harold Camping’s end of days have versus 2000 years of Armageddon fear mongering?

The Rapture folk know the first rule of forecasting — hence the indefinite date for the World’s end versus getting too specific.

Coming on (12/21/12) — The Mayans (or not) !

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Via Google Trends

I love this slideshow deck:

via Holy Kaw

See you tomorrow (hopefully!)

Same song 25 years later:

Succinct summation of week’s events:

Positives:

1) Relief for the consumer as gasoline prices fall .10 from last week’s high
2) Initial Jobless Claims fall to 409k from 438k (but still above 400k for 6th straight week)
3) Refi’s rise to 5 month high as mortgage rates fall to 5 month low
4) Housing starts/permits below expectations as we have enough existing homes on the market to last 9.2 months at current sales rate
5) German ZEW economic current conditions component hits record high, dating back to 1991

Negatives:

1) Greece reaching boiling point, Spanish 2 yr yield up almost 30 bps on week
2) Germany ZEW 6 month outlook falls to 5 month low
3) Existing home sales less than expected, not a surprise but still huge drag
4) Housing starts/permits below expectations, continued impact on construction
5) May Philly and NY mfr’g survey’s well below forecasts as mfr’g showing signs of moderation
6) Motor vehicle production falls sharply in April in reaction to Japan disaster
7) Bloomberg consumer confidence falls to lowest since Aug
8) UK CPI hits 4.5%, 3rd highest reading since 1992