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LATEST ARTICLES
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It is time that authorities recognise that economic growth cannot be generated with macro-economics alone. Micro-economics, especially the encouragement of innovative entrepreneurship is also an essential component.
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The fall on gold, China’s downgrade and an unexpected result of Japan’s ultra-loose monetary policy are all adjustments to the 'new normal'.
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After five years of waiting for a return to normal economic and market behaviour, let us recognise that “normal” will not return any time soon and needs redefining.
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The Cypriot bank bail-out has implications well beyond Cyprus, especially concerning the protection of depositors. The loss of banking trust may have a silver lining.
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Some ideas are so stupid that even their proponents will back down. Such is Cyprus bank deposit confiscation. See also the key points of a bridport/Hunt conference.
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The Italians are not alone in protesting against excessive austerity. Everywhere, traditional political parties are being disavowed and unconventional parties growing, some explicitly committed to euro or EU withdrawal.
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The Italians have mightily protested against excessive austerity, and they are not the only ones. Maybe some good will come out of what most see as a bad election result. Maybe not.
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Consider whether there are sufficient good signs in Europe to see this month as the “end of the beginning” (Churchill 1942).
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Is the US economy really in better shape than Europe’s?
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Some specific issues related to the primary market may be additional signs of a credit bubble.
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The outcome of the Japanese experiment is only one question unanswerable except with the passage of time. This week we have three more to consider.
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Japan is undertaking an experiment in inducing inflation. Whether the experiment works or not, it will provide many lessons.
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Is the current market optimism justified? We look at the USA, EU, the UK and Japan and inclined to “yes, but”. And we ask whether safe havens are dangerous?
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We present summaries of the two opposing views of the US economy without hiding our own. We cannot claim Europe is in any better shape.
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Good returns on bond portfolios in 2012 have been very dependent on the narrowing of spreads. That is unlikely to continue in 2013, just when yields will scarcely match inflation.
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As the euro zone moves slowly federalisation, the question is how to fiscal achieve discipline for each member country. Decentralised à la USA, or centralised à la Germany.
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Sadly, our hopes that QE would be ended soon in the UK and USA have been dashed as both King and Bernanke say they are open to continuing their programmes
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For many, quantitative easing is good news. We would see its ending as far better news. When might that be? Who might be first?
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This week we have challenged ourselves. We have highlighted the positive news which may help the economy in the future! While October revealed a lot of bad news, behind those, there are some long-term trends which developed. Of course, it will take time to solve all fundamental issues and investors need to be patient.
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A “phoney war” is underway on both sides of the Atlantic. Like its predecessor in 39/40 all hell will break out quite soon. With the Fiscal Cliff?
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Despite low coupon rates, bonds have provided respectable returns based on spreads narrowing. The same seems unlikely for next year and the danger of interest rate increases remains.
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Severe austerity is not working, so the time has come to consider alternative routes to regain sustainability. Reconsider the attraction of inflation and of good micro-economics.
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Indecision by politicians is now knocking on to corporations, who are obliged to withhold investment until the economic uncertainties are resolved.
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Stagnation or slow growth everywhere in the West, but a little optimism about UK employment may be justified. How can jobs grow by the GDP stagnate? Mystery!
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In June we saw only headwinds. Now everything seems resolved. Is it really the case?
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Rejoice that hope has returned to the euro zone, but keep your eyes on whether and how reforms are pursued, and be worried that printing money has become universal.
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Draghi has acted where politicians hold back, giving Europe the break so needed to continue its move to a federal structure for the euro zone.
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The banking supervisory role of the ECB and its bond-buying plan may be necessary but lack democratic support. Draghi the politician strikes while European leaders argue.
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The August calm has given way to a mood of relative optimism; positive signs are present in the USA and Europe but in the context of a world still cooling.
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While markets and commentators are focusing on euro break up, the European functionaries and politicians, if they are working at all, are drawing up rules for the banking union.
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Draghi is proving a great political maneuverer: “This is what we all agree is needed to save the euro, now, Germans, stop us if you dare”.
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You have to look very hard to find any positive developments on either side of the Atlantic. How strange that the USA’s currency and sovereign bonds have become havens for investors despite the chronic problems of the world’s largest economy in terms of internal and external deficits, political stagnation as well as chronically underfunded future pension and health care costs. The reason, of course, is that confidence in the euro and in the survival of the euro zone is so low that even the dismal outlook of the US economy looks good by comparison.
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'Worry is the interest paid by those who borrow trouble’
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What looks good can have unintended consequences, witness LTRO the low interest rates of the ECB and the entire “Target2” intra EMU settlement system
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So the vision of a fiscal union is being slowly backed into via a nascent banking union, thereby lightening the mood in financial markets. How durably?
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The EC has come up with a vision for future Europe. Now it will be seen if first the politicians then the voters sing up to it.
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Bailing out banks is a necessity, but let us examine the real purpose (the depositors, the “system”, as well as the conditions and the price paid by creditors and shareholders.
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If a federal system for the euro zone comes about, it is worth considering Merkel’s seven “neins” to see which will yield in what order, precipitated by Spain’s banks.
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The threat of Greece “walking away” from the euro should add some realism to Hollande/Merkel talks and give a push towards Germany taking its responsibility.
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How interesting to see if, how and when Merkel and Schäuble react to a widespread rebellion against an excess of austerity and a desire for a serious growth programme.
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The French must now choose between the Hopeless and the Horrible. If it is the former, say goodbye to European cohesion and competitiveness. Maybe the Horrible is the lesser evil!
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The debt crisis cannot be solved by pretending it is not there. Yet the leaders in at least two major countries have their heads in the sand.
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Is the SNB’s policy stance sustainable in the medium term?
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We try to define the real problems on both sides of the Atlantic to see if political leaders are actually addressing them. It is not encouraging.
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The recovery is weak but enough to cause a rise in the yields of those government bonds considered safe-haven. Consider the impact on corporate bond yields.
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When risk is “on”, serious analysis is “off”, allowing many unknown companies, from all over the world, to tap the corporate bond market
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We see this as a major reassertion of sovereignty and democracy. It will not be the last “rebellion”.
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To explain the lack of bid liquidity in European corporate bond markets, we hypothesis the existence of a yield barrier below which buyers refuse to go.
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An unusual mixture of rising markets in both equities and corporate bonds allows cleaning up of fixed-interest portfolios ready for a long period of little economic expansion.
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A benign atmosphere has set in, we hope for a few months. What a pity the underlying barriers to sustainable growth remain in place, thanks mainly to political inaction.
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Europe seems to have joined the USA in showing a few silver linings in the dark economic clouds. The ECB’s massive bank lending may be thanked. For increased liquidity.
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Rejoice in the improved employment situation in the USA, but do not confuse breathing space provided by cheap money with a real solution to economic weakness based on rebalancing.
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What is in Merkel’s mind as principal decider for the euro crisis? She is too smart for her ludicrous description of political union to be anything but a political ploy.
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“Federalisation or bust!” should be the slogan of the euro politicians and bankers now meeting.The ghost of Alexander Hamilton must be wryly smiling. Is Sarko a latter-day Hamilton?
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At the moment, bond market yields are being driven not by economic fundamentals, but by mass psychology and political issues. How long can this continue?
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With the departure of two Prime Ministers, some breathing space has been given to the euro zone to find permanent solutions, and to fixed-income investors to adjust their banking portfolios.
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As panic gives way to reflection on Papandreou’s referendum call, there may be good results from this after all, such as a more decisive rescue and federalisation with democratic underpinning.
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There may be lessons from the Swiss national Banks’ negative repo rate and the failure of Dexia. Both reflect aspects of how the euro crisis has become a banking crisis.
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The main features of the euro rescue plan are now appearing and there is hope that they will crystallise at the G20 meetings, including an outline of the “federal” structure.