I have been extremely busy this past week which has put me behind on my usual reading regime. However, with Easter now past, this weekend will allow me the chance to catch up. Therefore, this week's compilation of things to ponder is a veritable smorgasbord of topics that caught my attention this past week.
1) Have We Reached The Limits Of Growth? By Desmond Lachman via The American
I recently wrote an article discussing that since the turn of the century the U.S. has averaged the lowest rate of economic growth in history. The question remains as to whether this stagnation is a short term structural issue or a long term secular stagnation.
"The new high priest of long-term economic pessimism seems to be Robert Gordon, a renowned U.S. economics professor at Northwestern University. In a recent influential paper, he has forcefully argued that the rapid economic progress made over the past 250 years could very well be a unique episode in human history rather than a guarantee of endless future advance at the same rate. This thought, together with his assessment of the major structural headwinds presently confronting the U.S. economy in the form of bad demographics, declining education standards, and high debt levels, leads him to the most dismal of conclusions. He gloomily predicts that for the bottom 99 percent of the U.S. population, living standards will barely increase over the next 100 years."
Desmond Lachman argues against Dr. Robert Gordon's thesis of secular stagnation stating:
"Fortunately there are good grounds to question Gordon's grim view. Over the past few years, there appear to have been a number of major technological breakthroughs that could be of a transformative nature. Indeed, we would only seem to be at the very start of the development of robotics and artificial intelligence, three-dimensional imaging, the fuller exploitation of the human genome, and much more. It would seem to be presumptuous to dismiss such breakthroughs as holding little prospect for drastically improving our living standards and for fundamentally changing the way that the workplace will operate."
The question is this: While advances in technology can be accretive to human kind, it can also be a destructive force to economic growth. Is there an equilibrium?
2) Don't Get Dazzled By Glittering Growth by Jason Zweig via WSJ
David Einhorn recently made a very controversial statement in a client letter espousing that"
"There is a clear consensus that we are witnessing our second tech bubble in 15 years."
Of course, while the media went to extraordinary lengths to dispel that notion. While trotting out numerous fund managers to explain why the current technology market was anything like in 2000, they failed to recognize the most important point, which I addressed recently in "Historical Market Comparisons Are Meaningless:"
"However, the one simple truth is'this time is indeed different.' When the crash ultimately comes the reasons will be different than they were in the past - only the outcome will remain same."
It is in this regard that Jason Zweig discusses with great simplicity that "when you pay too much for a dream stock, you might end up with a nightmare."
"Over the past year, investors became increasingly excited over the hot performance -- and even hotter future -- of industries like biotechnology, Internet retailing and social media. But the ferocious selloff in these stocks over the past few weeks should remind every investor of a basic rule: You can be absolutely right about the future and still get wiped out.
Correctly forecasting a company or industry's potential for growth is important -- but not overpaying matters even more.
As the economist Max Winkler quipped in the late 1920s, investors often discount "not only the future but the hereafter" -- meaning that the price they pay for their hopes is so high that they won't make any money even if their hopes are realized."
3) Have Profits Finally Peaked? by Buttonwood via The Economist
"Instead, chief executives are turning to that old device for boosting sluggish profits: takeovers. According to Thomson Reuters, the global value of mergers and acquisitions in the first quarter was 36% higher than in the same period of 2013. The right takeover can result in cost cuts through economies of scale -- although in the long run, the academic evidence in favour of takeovers is mixed.
A takeover boom is a classic signal of the final stages of a bull market, a sign that financial engineering has taken over from genuine business expansion. And that is hardly a surprise: the current rally is already the fourth-largest and the fifth-longest-running since 1928."
4) Student Loans - Forgiveness & The Next Bailout via ZeroHedge
"Student debt has nearly doubled since 2007 to $1.1 trillion, disproportionately driven by the growth in graduate-school debt.
The plans' long-term costs have greatly outpaced the government's predictions. In the last fiscal year, debt absorbed by the repayment plans from the most widely used student-loan program -- Stafford loans -- exceeded government expectations from a year earlier by 90%.
A report Monday last week from the Brookings Institution, a centrist think tank, offered one of the few preliminary examinations of the programs' impact. The most popular plan could cost taxpayers $14 billion a year if it becomes available to all borrowers as Mr. Obama has proposed, while fueling tuition inflation, it said.
Loan forgiveness creates incentives for students to borrow too much to attend college, potentially contributing to rising college prices for everyone," the study said. The authors recommend scrapping the forgiveness provisions."
Also Read: The Next Massive Bailout by Dan Kadlec via Time
5) Hoisington Quarterly Review & Outlook Q1-2014 by Dr. Lacy Hunt
I never miss reading Dr. Lacy Hunt and Van Hoisington's quarterly reviews of the economy and the markets. This is a particularly interesting issue as they take on the effectiveness the of the Federal Reserve's ongoing monetary programs and their continually overly optimistic assumptions about future economic growth.
Bonus: Who Does The Government Owe Money To? by Craig Eyermann via Advisor Perspectives
"The biggest surprise in this edition of our chart (compared to the previous edition) is the appearance of Belgium on the list, which jumped ahead of several other nations by more than doubling the amount that is being lent to the U.S. government from the small European nation over the last six months. Since Belgium is a major international banking center, what this really represents is the accumulation of U.S. debt by other foreign entities through Belgium's banks in much the same way as London's banks have historically served this role for countries such as China"