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The 8 Most Fascinating Things I Read This Week

Morgan Housel
June 15, 2012

Happy Friday! There are more good news articles, commentaries, and analyst reports on the Web every week than anyone could read in a month. Here are the eight most fascinating ones I read this week.

1. The world's superpower(s)
Catherine Rampell of The New York Times points out a survey from Pew Research Center asking people around the world whom they consider to be the world's leading economic power:


U.S. (%)

China (%)

Japan (%)

EU (%)

Other (%)

U.S. 40 41 6 5 8
Britain 28 28 5 3 7
France 29 54 7 6 0
Germany 13 62 5 17 3
Spain 26 57 9 5 3
Italy 37 46 8 3 6
Greece 36 45 7 3 10
Poland 35 35 12 4 13
Czech Rep. 29 51 9 7 5
Russia 26 33 17 7 18
Turkey 54 22 6 8 10
Egypt 40 39 11 7 3
Jordan 36 44 16 4 0
Lebanon 34 44 5 5 12
Tunisia 48 29 7 5 11
Pakistan 48 27 4 1 20
China 48 29 2 5 15
India 37 17 7 1 38
Japan 45 43 3 5 5
Brazil 45 27 15 3 10
Mexico 51 18 12 6 12

2. Green shoots
If you've followed economic pundits over the last few years, you've heard of David Rosenberg. He's a Canadian economist who's been resolutely bearish -- sometimes apocalyptically bearish -- to an almost humorous extent. Now he's changing his tune, according to The Wall Street Journal:

Is Mr. Rosenberg defecting from the dark side? Not quite yet, he says. But he maintains he now is more optimistic than he has been in more than a decade. ...

Mr. Rosenberg says his newfound optimism was crystallized by the votes last week in Wisconsin and California. He sees those representing a sea change in the way state and local governments are addressing their fiscal problems, and expects that attitude will sweep across statehouses and eventually filter up to the national level. ...

All of this leads him to believe the next 15 years or so won't be like the past 12 or so. Anybody who tries to project the future based on the immediate past is making a mistake of "gargantuan" proportions, he says.

3. Who's buying our debt?
Some insist that the only reason interest rates are so low is because the Federal Reserve is overwhelming the market with Treasury purchases. Jeff Cox of CNBC points out that there's another side to the story:

The demand among average investors has swelled so much, in fact, that they bought more Treasurys in the first quarter than foreigners and the Fed combined.

Households picked up about $170 billion in the low-yielding government debt during the quarter, while foreigners increased their holdings by $110 billion.

The Fed, meanwhile, actually slightly decreased its net holdings, not a surprise since its latest quantitative easing endeavor begun in September -- nicknamed Operation Twist -- was designed to be balance sheet-neutral.

4. More on bond buyers
What kind of idiot would buy Treasuries that yield 0%? Jason Zweig of The Wall Street Journal describes buyers who are rationally indifferent to price:

Under the Dodd-Frank financial-overhaul law, the trading of many derivatives -- complex instruments like interest rate swaps -- will eventually migrate to central "clearinghouses." Buyers and sellers will have to post "margin," or collateral, to back their positions. One obvious choice for that margin would be U.S. Treasurys -- yet another form of the artificial demand for government debt ...

Such derivatives total an estimated $700 trillion in "notional" or face value outstanding. If only 10% of the total is affected, with an initial requirement of even just 1% margin from both the buyers and the sellers, that implies an extra $1.4 trillion in demand for short-term Treasurys, reckons [Todd Petzel, chief investment officer at Offit Capital]. Those new purchasers would have to buy the debt no matter how paltry its yield.

A derivatives trader at one of the world's largest hedge funds tells me that he finds Mr. Petzel's estimate "quite believable" -- if not conservative.

5. On legacy
Famed author Malcolm Gladwell adds a twist to the Microsoft (Nasdaq: MSFT  ) vs. Apple (Nasdaq: APPL  ) rivalry. Business Insider quotes him as saying:

"[Bill] Gates is the most ruthless capitalist, and then he wakes up one morning and he says, 'enough.' And he steps down, he takes his money, he takes it off the table.

"I firmly believe that 50 years from now, he will be remembered for his charitable work, no one will even remember what Microsoft is.

"And of the great entrepreneurs of this era people will have forgotten Steve Jobs. Who's Steve Jobs again? There will be statues of Gates across the third world."

6. Some things never change
Remember credit default swaps? They're the explosive derivative product th