Bill Gross | August 2007
"The rich are different from you and me," wrote Fitzgerald and I suppose they are, but the differences – they wax and wane with the economic tides. Gilded ages come, go, and are reborn on the monsoon cloudbursts of seemingly intangible forces such as globalization, innovation, and favorable tax policy. For the rich to be truly rich and multiply their numbers, they need help. Adept surfers they may be, but like all riders, the wealthy need a seventh wave that allows them to preen their skills and declare themselves masters of their own universe, if only for a moment in time. That the golden glazed surfboards of the 21st century seem unique with their decals of "private equity" and "hedge finance" is mostly a mirage. Wealth has always gravitated towards those that take risk with other people’s money but especially so when taxes are low. The rich are different – but they are not necessarily society’s paragons. It is in fact society’s wind and its current willingness to nurture the rich that fills their sails.
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NEW YORK (Reuters) - American Home Mortgage Investment Corp plans to close most operations on Friday and said nearly 7,000 employees will lose their jobs as the lender becomes one of the biggest casualties of the U.S. housing downturn.
Experts said it is likely the Melville, New York-based company will have to seek bankruptcy protection, and no later than Monday.
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It is always risky to call an equity market peak and the beginning of a bear market in equities; so I will not try to do that. But leaving aside equity valuations, it increasingly looks like we are at the peak of a credit/debt cycle, in the US and globally.
Specifically, the crucial macro question that we should ask ourselves today is whether we are at the peak of a Minsky Credit Cycle. Or as the UBS economist George Magnus – an expert of financial instability - put it: “Have we reached a Minsky moment?”
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Many writers of investment books approach the topic of saving and investing without any clear economic theory. Value investors often share the sentiments of fund manager Peter Lynch, who said, "If you spend 13 minutes a year on economics, you have wasted 10 minutes."
At the other end of the methodological spectrum, MBAs trained in efficient portfolio theory disdainfully characterize the suggestion that investors should at times not hold any stocks in their portfolios as "market timing" — the investment world’s equivalent of casino gambling.
It is not possible to approach macroeconomic questions without an economic theory. A sound economic theory may or may not yield any useful insights for investors, but a false one is almost certain to mislead.
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