The US deficit “Supercommittee” is supposed to reach agreement by this Wednesday, and by today if it wants the CBO to have time to evaluate any agreement. A leak today, and an analysis of the political situation, suggest that agreement will not be reached. In a poll, 42% of Americans said that they would blame the Republicans if the talks fail, with 32% inclined to blame the Democrats. This is good news — if the Republicans (rightly) get the blame, the Democrats are more likely to take back the House and retain the Presidency in 2012, and a semblance of economic sanity may return to Washington, D.C.

The market appears to be reacting this morning to the impasse on the debt committee. In some ways, the market is quite thick. It focuses on one aspect or another of the reality, and wings around as it does so. There was never much chance of an agreement, given that only one party, the Democrats, is actually interested in fixed the problem at hand, while the other, the Republicans, is interested in nothing but tax cuts for the rich. Having apparently been too optimistic about the chances for an agreement, the market now appears to be focusing on the automatic cuts that are supposed to kick in from 2013 if no agreement is reached. But there is plenty of time for them to be repealed both before and after the 2012 elections, and there is a good chance that that will happen, especially if the Democrats carry the day.

Mariano Rajoy’s People’s Party has won the Spanish election, as widely expected. Rajoy is committed to austerity and thus represents continuity on the big issue of the moment. He faces two issues: first, the power of Spain’s regional governments, which may not rein in spending as much as he wants; and second, the coming European recession, which may drive up Spain’s deficit/GDP ratio by reducing the denominator, however much the government attempts austerity.

The FT has a piece on Bill Miller and how value investing in general has not worked well since 2006. This makes sense to me. When a rising tide is lifting all boats, it makes sense to buy the boats that are cheap or in need of a bit of repair. When the tide is out and people are not sure when it will return, it makes sense (to stretch the analogy into surrealism) to buy boats that are capable of lifting themselves. Thus growth stocks outperform.

Barking Up the Wrong Tree ( sends us to a review of Inside Jokes by Hurley, Dennett and Adams. Apparently the authors propose an answer to the question: why do we laugh. They think that humour is a way for the brain to reward itself for discovering mistakes in inferences or assumptions that it had previously made — something that should provide an evolutionary advantage. I like this idea. I tend to laugh when I discover some inconsistency in my own thinking, especially if someone else brings me to see it. In interviews, for example, I have never felt I got any credit for this laughter, whereas I always felt it was a positive thing, and this book brings some intellectual backing to my intuition. Laughter in this context is, perhaps, demonstrative of a willingness to accept one’s mistakes and change one’s mind (it is impossible to laugh at a mistake if one will not accept one has made it). That is a positive trait in an investment professional.


Japanese trade deficit widened unexpectedly on falling exports in October.
Eurozone current account moved into surplus in Sep, as a result of falling imports. This is a further sign of economic weakness.

This week:

Mon: US existing home sales.
Tue: UK public sector borrowing; US prelim GDP and FOMC minutes.
Wed: China and Eurozone flash PMI’s; Eurozone industrial new orders; UK MPC minutes and mortgage approvals; US durable goods orders, initial claims, Personal Income and Outlays report, revised Michigan sentiment.
Thu: German Ifo business climate; UK revised GDP; US closed for Thanksgiving.
Fri: Nothing.