Posts filed under “Think Tank”

Good Morning, Vietnam!

David R. Kotok co-founded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in Economics from The Wharton School of the University of Pennsylvania, an M.S. in Organizational Dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a Masters in Philosophy from the University of Pennsylvania. Mr. Kotok’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron’s, and other publications. He is a frequent contributor to CNBC programs. Mr. Kotok is also a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), the Philadelphia Council for Business Economics (PCBE), and the Philadelphia Financial Economists Group (PFEG).


Good Morning, Vietnam!
Sent from Hanoi, November 16, 2009

Robin Williams’ movie scenes are nothing like modern-day Vietnam. At 6 AM the streets are already teeming with people, scooters, buses and cars. Many Hanoi city folks gather to exercise in the early morning. Badminton games are everywhere and exercise groups of all types are ubiquitous, almost as ubiquitous as the cell phones.

By 8 AM the workday has commenced and the traffic is chaotic but not truly a “jam.” Somehow it works. There are 3 million scooters in this city of 6.5 million people. Many intersections have neither stop signs nor traffic lights. There is a remarkable order in the how the scooters and pedestrians and buses all seem to accommodate each other. Ask anyone who has been here and they will describe this cacophony to the reader who hasn’t yet put Vietnam on the top of the list of places to visit.

Vietnam is an emerging-market success story. Our GIC (Global Interdependence Center, delegation has visited the stock exchange, where 400 listed companies now trade with a combined market cap of 50% of GDP. We met privately with the chairman of the VN version of the Securities and Exchange Commission. They were formed in 2007 and are dealing with the growing pains of rapidly expanding private-sector markets in a newly emerging country. This looks like a mini-China of a few years ago. Under present plans there will be 1500 companies trading soon, as the government sheds its state-owned industries and privatizes the economy. There is one Vietnam ETF in the US. It was launched in September and bears watching closely. The issue is that half of its weight is in the financials, and therein one finds an ongoing global problem. It also has limited liquidity because of newness. Cumberland hasn’t bought it yet, but it is on the watch list for future positioning in our global portfolios.

Back to Hanoi. Segue to history.

Bill Stone of the Philly Fed is in our delegation. He served in South Vietnam in 1970. I was lucky enough to be assigned elsewhere by the US Army in the 1960s. Our group visited the “Hanoi Hilton” and shared some thoughts about the experience. By agreement, Bill will speak for himself; the following impressions are mine alone.

The visit to war history here is sobering. There is the photo of John McCain on his return visit and another of him lying on a stretcher while he was a prisoner. There are other powerful photos. And there is the story of the war told through the Vietnamese lens. They call it the American War; the obverse of what we call the Vietnam War. The Hanoi Hilton was originally built by the French to be a prison for Vietnamese dissidents. VN war history shows that VN treated their American prisoners better than the Vietnamese were treated by their French occupiers.

We also visited the war museum and saw the defeat of the French in the 1950s. In the next section, Dien Bien Phu history was followed by the memorial to the defeat of the Americans. Yes, we Americans were resoundingly defeated.

In my view and as a retrospective, we were misled by our politicians. There are so many questions unanswered. What if Eisenhower had responded positively to Ho Chi Minh? Would HCM have sought out the communist Russian alliance, or was that his last resort to escape what had been brutal French occupation and colonization?

Remember, this history here is told through the Vietnamese lens. It is clear that the internal story of Vietnam is one of repelling conquest by China or France or America or others. Vietnamese youth are taught that they have always resisted the invader and that they have never aspired to conquer others. That is the first message one hears here.

The second, and my personal one, is a feeling of good luck. I wasn’t sent here. I didn’t die here. Many Americans were not and are not as lucky. “There but for the grace of God, go I” has resonance to this writer as he stands and looks at the history with his own eyes.

Lastly, the sense of the futility of war is very powerful here. Why are politicians so engaged in these acts of madness? Was Kennedy convinced because the southern part of the country was dominated by a Roman Catholic minority in power, and they prevailed on his religiosity and that got us into the Vietnam War? Did the so-called Harvard brain trust really think they were making the world safe for democracy by expanding the Vietnam War, as we call it? Did anyone believe that bombing Hanoi would lead these people to capitulate, after they had resisted invaders for several thousand years? Did they take the time to understand history?

And lastly, the debate in our group centered on American policy as we presently know it. President Bush’s war is now becoming President Obama’s war. We discussed the parallels and differences between Vietnam then and Afghanistan now. Has anyone throughout history occupied and successfully pacified Afghanistan? Will that be Obama’s failure? Does the “domino theory hold with Pakistan?” It certainly didn’t hold in Southeast Asia.

Personally, I expect Vietnam to be a booming emerging market. These younger folks do not want war. They have moved from bicycle to scooter, from hand writing notes to cell phones. They do not want to lose what they have and they reject the violence of the past.

Can we find a way to introduce that notion of stakeholdership elsewhere in the world? In Afghanistan? In Iraq or in Iran? I am convinced that the task is enormously difficult and fraught with many obstacles. But it is the noble purpose of the GIC to try to avoid war by developing stakeholders who are invested in the peace. We do that in economic and financial terms. That is why we came to Vietnam.

The trip was well worth the effort. Come see for yourself.

We finish with meetings with the Finance Ministry here, and then off to Singapore for the public conference that GIC is holding in partnership with the University of Chicago. Readers may find me as guest host on CNBC’s Worldwide Exchange at 5 AM New York time on Wednesday morning. Safe journey to all. For now we wish you Tam Biet.

David R. Kotok, Chairman and Chief Investment Officer, email:

Category: Think Tank

Words from the investment wise 11.15.09

Words from the (investment) wise for the week that was (November 9 – 15, 2009)

“Words from the Wise” this week comes to you in a shortened format as I do not have access to my normal research resources while on the road in Europe. Although very little commentary is provided, a full dose of excerpts from interesting news items and quotes from market commentators is included.

While the Dow Jones Industrial Index and other benchmark indices reached 52-week highs last week and pleased Wall Street, the cartoonists reminded us that worrisome economic issues remained in Main Street …


Source: Jeff Parker,, November 11, 2009.

The past week’s performance of the major asset classes is summarized by the chart below – a mixed bag, so to speak, with government bonds, equities, corporate bonds and gold closing the week in positive territory.



A summary of the movements of major global stock markets for the past week and various other measurement periods is given in the table below. With the exception of only a few indices – notably the Japanese Nikkei Dow that recorded a third consecutive down week – most global stock markets made headway last week, adding to the gains for the month.

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Category: Think Tank

If This is Recovery…

November 13, 2009
By John Mauldin

If This is Recovery, Where Are the Taxes?

Last Business Standing

Stimulus, What Stimulus?

The Reality of Unemployment

Let the Good Times Roll

The Quick Double-Dip Scenario

Phoenix, New York, and Thoughts on the Internet


No one goes into Wal-Mart and asks to pay extra sales tax. Thus sales taxes are reasonable barometers for retail sales. This week we look at how taxes are doing in a period of economic recovery. Then we turn our eyes to a very interesting (and sobering) analysis of possible future unemployment rates. This is an anecdote to the happy-face analysis of employment numbers you get from establishment economists. There will be a lot of charts and tables, so this letter may print a little longer, but I think you will find it very interesting.

If This is Recovery, Where Are the Taxes?

I keep reading about surveys that show that retail sales are up. But as noted above, no one pays extra sales taxes, or decides they need to pay more income taxes. The surest way to measure retail sales is sales taxes. Want to know how incomes are doing? Look at income tax receipts. Let’s look at sales taxes first.

First off, I can find no single source of recent sales tax information. It is all one-off, but it is consistent. Sales taxes in my home state of Texas are down 12.8% year-over-year, and we’re in the fifth straight month of decreases of 11% or more. Projections are for sales taxes to continue to decline into 2010.

There is a very revealing study by the Pew Center on state taxes, called “Beyond California” ( Everyone knows how bad California is. The Pew Center looks at how the rest of the states are doing, and focuses on 10 states that also have severe problems. Sales tax receipts are down 14% in Arizona, and state income taxes are down 32%.

On average, revenues are down almost 12%. Oregon has seen their revenues collapse a stunning 19%. New York is down 17%, with a deficit of 32%. Illinois has a projected deficit of 47% of its budget, second only to California with 49%. You can see how your state fares at

The Liscio Report notes that all states had negative year-over-year sales tax collections in October, and the weighted average decrease was 10.2%, down from a negative 7.2% in September. (

Sales at Wal-Mart stores slipped by 0.4% in the third quarter. Actual government figures show that retail sales were down 1.5% in September from the previous month and 5.8% year-over-year. So how do we keep seeing headlines about retail sales being up, as unemployment keeps rising?

Remember that such reports are usually based on surveys, and generally cover mid-sized and up retailers, leaving out smaller businesses. Further, if you are a retail chain that has closed 10% of its stores, the remaining stores should in theory benefit from getting your loyal customers into them.

Last Business Standing

Yesterday I was with an associate, and I hesitated in asking them how their business was doing, because I knew things had been tough at the beginning of the year. But I did ask, and they said sales were up over the last months and business was looking better. Surprised, I asked them what made the difference. “Ah,” they said, “less competition. Our competitors have gone out of business.”

Best Buy and other electronic retailers had to benefit from Circuit City disappearing. That is Schumpeter’s creative destruction at work. Not very good for total employment, but it does help the profitability of the survivors.

So, if things are so bad, how did we have 3.5% growth in the third quarter? First off, things are not as bad as they were in the past year. We are in fact getting close to an economic bottom, at least for now. Second, the 3.5% number is a preliminary estimate. A study by Goldman Sachs suggests that the number will be revised down by at least 0.5% and maybe as much as 1%.

Why? The estimate does not really take into account how poorly small businesses are performing. If you look at small-business indexes and compare them to historical GDP numbers, you get the smaller number mentioned above. And since at least 2% of the GDP was from the stimulus package (Cash for Clunkers, houses, tax cuts), the economy on its own was flat. That begs the question, what happens when the stimulus runs out?

And the answer is that we won’t know for some time, as the stimulus is just getting ramped up. “According to CBO estimates, only 21% of [the stimulus] spending will occur in 2009; another 38% will come in 2010, and 22% in 2011. After that, its effect will dissipate quickly.” (The Liscio Report)

But David Rosenberg notes that what the federal government is giving, the states are taking away. The Pew Study shows that at least nine other states are in appalling shape, so it is no wonder that David writes:

Stimulus, What Stimulus?

“Fully nine states are in fiscal distress and only two have balanced budgets. States like Michigan are planning 20% budget cuts for the coming year. Indiana is planning a 10% spending cut in light of a 7.4% YoY revenue decline. How can the economy really be out of recession if government revenues are still deflating?

“The states are filling around 40% of their fiscal gaps with the federal stimulus (so much for spending on “shovel ready” infrastructure projects). Even after the fiscal help from Washington, the state governments will still face a projected deficit of $142 billion for 2011 (versus $113 billion in 2010). All in, the restraint in the state and local government sector is estimated to drain a full percentage point from U.S. GDP growth in 2010 and more than fully offset the stimulative efforts from Washington. The U.S. economy is more likely to post growth of little more than 2% next year, rather than the 5% currently being discounted by the equity market.”

The Reality of Unemployment

All this is, of course, going to put continued pressure on employment. As I noted last week, the number of unemployed actually soared by 558,000, to 15.7 million, as measured by the household survey, not the 190,000 you read about in the mainstream media. Unemployment is sadly continuing to rise by significant amounts.

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Category: Think Tank

Fed Hawks vs Doves

Terrific Article in the FT on Fed Hawks & Doves: STRONG DOVES Janet Yellen, president, San Francisco Federal Reserve Leading dove on the committee. A heavyweight former senior economic adviser in the Clinton White House who recently joined the Group of 30 leading global policymakers. Expects the recovery will “look something like an L with…Read More

Category: Federal Reserve, Think Tank

The Euro Zone grows again

The Euro region officially grew again in Q3 on a q/o/q basis for the first time since Q1 ’08 as both Germany and France saw growth for a 2nd straight quarter, albeit a touch less than expected. Overall, the Euro zone grew .4% q/o/q, .1% less than expected and because of the slight miss relative…Read More

Category: MacroNotes

30 year bond auction was light

The record $16b 30 year bond auction was light as the yield was a few bps above where the when issued was trading and the bid to cover at 2.26 was the weakest since May and below the ’09 average of 2.43. Indirect bidders totaled 44% which is about in line with the ’09 average….Read More

Category: MacroNotes


David A. Rosenberg is Chief Economist & Strategist at Gluskin Sheff, with a focus on providing a top-down perspective to the Firm’s investment process. Mr. Rosenberg has earned both Bachelor of Arts and Master of Arts degrees in Economics from the University of Toronto. Prior to joining Gluskin Sheff, David was Chief North American Economist at Bank of America-Merrill Lynch in New York and prior thereto, he was a Senior Economist at BMO Nesbitt Burns and Bank of Nova Scotia. Mr. Rosenberg has ranked first in economics in the Brendan Wood International Survey for Canada for the past seven years and was on the U.S. Institutional Investor All American All Star Team for the last four years.





There are serious structural issues undermining the U.S. labour market as companies continue to adjust their order books, production schedules and staffing requirements to a semi-permanently impaired credit backdrop. The bottom line is that the level of credit per unit of GDP is going to be much, much lower in the future than has been the case in the last two decades. While we may be getting close to a bottom in terms of employment, the jobless rate is very likely going to be climbing much further in the future due to the secular dynamics within the labour market that need to be discussed:

• For the first time in at least six decades, private sector employment is negative on a 10-year basis (first turned negative in August). Hence, the changes are not merely cyclical or short-term in nature. Many of the jobs created between the 2001 and 2008 recessions were related either directly or indirectly to the parabolic extension of credit.

• During this two-year recession, employment has declined a record 8 million. Even in percent terms, this is a record in the post-WWII experience.

• Looking at the split, there were 11 million full-time jobs lost (usually we see three million in a garden-variety recession), of which three million were shifted into part-time work.

• There are now a record 9.3 million Americans working part-time because they have no choice. In past recessions, that number rarely got much above six million.

• The workweek was sliced this cycle from 33.8 hours to a record low 33.0 hours — the labour input equivalent is another 2.4 million jobs lost. So when you count in hours, it’s as if we lost over 10 million jobs this cycle. Remarkable.

• The number of permanent job losses this cycle (unemployed but not for temporary purposes) increased by a record 6.2 million. In fact, well over half of the total unemployment pool of 15.7 million was generated just in this past recession alone. A record 5.6 million people have been unemployed for at least six months (this number rarely gets above two million in a normal downturn) which is nearly a 36% share of the jobless ranks (again, this rarely gets above 20%). Both the median (18.7 weeks) and average (26.9 weeks) duration of unemployment have risen to all-time highs.

• The longer it takes for these folks to find employment (and now they can go on the government benefit list for up to two years) the more difficult it is going to be to retrain them in the future when labour demand does begin to pick up. Not only that, but we have a youth unemployment rate now approaching a record 20%. Again, this is going to prove to be very problematic for employers in the future who are going to be looking for skills and experience when the boomers finally do begin to retire.

In a nutshell, to be calling for a 12.0-13.0% unemployment rate is meaningless except that it is very likely going to be a headline grabber.

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Category: Employment, Think Tank

Banks Are Getting Desperate With Principal Reduction Offers

Calculated Risk has a fascinating and detailed look at an UNSOLICITED Principal Reduction Loan Modification (pdf) offer from BofA. A few background details: The homeowner bought the house in May 2005 for $420,000. The homeowner refinanced in March 2006. This included a negatively amortizing adjustable rate mortgage (NegAM ARM) first with BofA for $392,000, and…Read More

Category: Bailouts, Credit, Real Estate, Think Tank

Initial Claims continue downward trend but…

Initial Claims totaled 502k, 8k less than expected and its the lowest level since the 1st week of Jan when it was 488k (Oct ’08 was time before that where claims were below 500k) and down from 514k last week which was revised up by 2k. Continuing Claims fell 139k and were 69k below forecasts…Read More

Category: MacroNotes

Morning stuff

The MBA said weekly purchases fell 11.7% to the lowest level since Dec ’00 as the uncertainty over whether the home buying tax credit would be extended clearly froze activity. With it now being resumed into the spring, purchases should tick up again but we’ll get to see how much demand was pulled forward. The…Read More

Category: MacroNotes