April 2012 - John Mauldin's Outside the Box

I want to emphasize that I do not think Spain is hopeless. Rather, it has a narrow set of limited options that will require a great deal of austerity and economic pain on the part of Spain and significant help from the rest of Europe, combined with the forbearance and patience of the bond market or massive buying of Spanish bonds by the ECB for an extended period of time. I think it will need to be the latter, as the bond market is on the brink of breaking down on Spanish debt, failing a realistic path to economic balance and growth. The way ahead is most difficult and treacherous. It appears to me that at the end of the day only ECB participation can buy Spain the time it needs. If they give Spain the time, it can get through. But the pain will then be spread to the valuation of the euro and thus the entire eurozone.

I debated with myself about what to send as this week's Outside the Box. I have decided on a recent short but important post from my friend David Kotok, Chairman and Chief Investment Officer of Cumberland Advisors. He calls it "I'm Worried." There are some very thought-provoking ideas here, but what makes it particularly interesting is that I'm running into this sentiment more and more as I travel around the US; and when I'm abroad I also hear from people who are worried about the US. These are folks who rightly realize the world needs a strong US, both as an economic engine and as a leader –a chairman of the board, if you will –of a growing world. (Can the world grow and prosper without us? Of course, but not as easily, and the transition will not be pretty.)