Summer Reading: The Editor’s Pick

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The “Editor’s Pick” distills the nearly 3000 posts made on MacroBusiness in 2011 (2977 as of December 28) into a long, but core list of around 40 articles across the main categories and issues that we cover.

For newcomers, this is a great introduction to MB and a trip down memory lane for our growing number of regular readers. I recommend you bookmark this page for future reference.

On the Western Crisis

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In the aftermath of the S&P downgrade of the US, each of the senior bloggers prepared their view of the likely direction and fallout of events:

  • Houses and Holes presented the context and history behind the downgrade.
  • Delusional Economics presented his take on the European end-game.
  • The Unconventional Economist examined China’s growth model and its global linkages to determine its fate if (when) the Western powers slide back into recession.
  • The Prince and Q Continuum offer a paradigm through which to view equity markets and the Great Volatility ahead.
  • Deus Forex Machina looks at the growing currency chaos and diagnoses where the Australian dollar fits.
  • Houses and Holes then despaired at the absolute failure of the baby boomer controlled Australian media to understand what is going on.

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On the Politico-Housing Complex

Defined as the “great public/private partnership of the Australian housing quango that has virtually nothing in common with either capitalism or a market”, the discussion begins with:

  • Houses and Holes explanation of “disleveraging”, i.e the deceleration in private credit (mortgages) growth and its impact on the Australian economy.
  • Delusional Economics explains how the individual beliefs around house prices collide with systemic risk, followed by an investigation into how the basically unregulated real estate industry gets away with reinforcing and profiting from those beliefs in “The Big Spruik“.
  • The Unconventional Economist showed it wasn’t just the RE industry, but the regulators including the RBA who underestimated Australian housing values and affordability, thus reinforcing the delusion and avoiding managing the systemic risk.
  • Houses and Holes explains the complex itself, as a first home buyer campaign to “strike” against it went underway earlier in the year.
  • Rumplestatskin showed how the official CPI figures hid the froth of the housing market, arguably keeping interest rates too low for too long and leading to higher systemic risk.
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On Global Macro/Europe

The major global macro event of the year was the continuining debt crisis in Europe, extending past the periphery into the core nations including Italy. These events must be viewed in context with US economic and monetary policy and how markets and economies actually work in practice, something policy makers and economists got wrong all year:

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  • Deus Forex Machina stated in March that a withdrawal of monetary liquidity (and higher interest rates) would cause markets to falter, drawing on the structural problems within our bubble based economic paradigm.
  • Delusional Economics also back in March was well aware of the macro imbalances in Europe that would spill over to other economies and markets, then explained why this was a banker and bondholder led bailout in April, and in May called for the inevitable default of Greek debt.
  • Houses and Holes in June called the reality of the global situation, with dark clouds hanging over the 4 major economies, and followed up in August why markets – supersonic, highly sensitive and utterly interconnected – and hence economies, run purely on sentiment and perception.

On Australian Macro/Dollar

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The Australian economy, presented as the strongest in the OECD, has major structural problems underlying this perception, above and beyond the politico-housing complex, and it was up to MacroBusiness to explain the risks:

  • Houses and Holes led the charge, explaining in November his year long rationale why the economy has only one speed, even in the midst of a record mining boom.
  • Deus Forex Machina explained in September that the forthcoming rate cuts were not to forestall European weakness but to support employment and the slowing economy.
  • The Prince analysed why the average Australian wasn’t feeling the effect of the boom, with GDP per capita only rising 0.5% since March 2008, with the resulting fact that the economy is not growing above or at trend.
  • Rumplestatskin shows how the resource led mining boom is actually a curse, mismanaged from the start and leaving the country open to huge risks in any external cyclical slowdown.
  • Houses and Holes closed out the year stating our reliance on high iron ore and metallurgical coal prices and hence terms of trade and therefore Budget revenue will take a hit, with a possible current account crisis for Australia in 2012.

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On Economic Theory and Analysis

MacroBusiness is not just about reporting the facts behind the fluffery, or analysing the risks and opportunities, but providing insight into ideological dogma:

  • Delusional Economics comes up with an alternative to the failed GDP measure called “GPEC”, analyzing the last 10 years using this benchmark highlighting the major problems underlying the Australian economy. He went further in explaining our ideologies can blind economists and pundits from the reality of how our modern financialised world works.
  • Rumplestatskin reviews Steve Keen’s work on the fallacies of the free trade argument.
  • Equities analyst Sell on News expanded his intellectual muscle and opined on the difference between economic freedom and free markets, and further sticks the boot into the economic status quo and finally brings the veil down on the ideologically, not empirically driven debate behind sovereign debt (which only makes up 20% of total worldwide debt).
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On Investing and Superannuation

In a year where stock markets corrected sharply and another paltry result for Australian superannuation holders left them shaking their heads, MacroBusiness offered some explanations and possible solutions for the savvy investor:

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  • The Prince highlighted the major failing of fund managers, sticking to the failed financial paradigm of the past, inspired by:
  • Rotten Apple’s work on risk, and why the mainstream don’t understand or mismeasure the critical role risk plays in your portfolio.
  • Q Continuum examined strategies for getting absolute returns in harsh times, looking at dividends, and overall investing in sideways markets.
  • The Prince continued his highlight on superannuation, with a focus on what property owning Baby Boomers could do, and how all investors should master themselves before attempting to master the market.
  • And also showed the main benchmarks for measuring market volatility and risk, and how the Australian stock market is more likely to track between 4000 and 5000 for the next few years at best.