August 2 links: ISM wakeup call

Greece 2 Year 5 Year 10 Year
Portugal 2 Year 5 Year 10 Year
Ireland 2 Year 5 Year 10 Year
Spain 2 Year 5 Year 10 Year
Italy 2 Year 5 Year 10 Year
Belgium 2 Year 5 Year 10 Year
France 2 Year 5 Year 10 Year
Germany 2 Year 5 Year 10 Year

Latest posts by David Llewellyn-Smith (see all)


  1. Downgrade ‘em anyway! Rogoff and Reinhardt

    Reinhart & Reinhart (Rogoff may have had a change of heart?)

    perpetuates a number of fallacies:

    the sovereign risk fallacy — on one hand a refusal to pay (contrast to the inability to pay in Greece) does constitute a sovereign risk but despite the political posturing a deal got done. There has been no refusal to pay bond holders. Even had a deal not been done it would have been Federal workers that carried the can not bond holders. So ratings agencies can rate the US however they want but meanwhile the 10y yield dropped to 2.75% overnight. How are bond yields in countries with genuine sovereign risk working out?

    The unfunded liability fallacy — Australia (Future Fund notwithstanding) doesn’t have money here and now set aside to pay for all pensions in 2050. Why should the US be expected to?

    They acknowledge the ongoing problems in the private sector and continued deleveraging. So they want BOTH the government and private sectors deleveraging at once?

    They say that foreigners buy bonds with their dollars to control bilateral exchange rates. Presumably they mean that if they convert their dollar holding back to their own currency the effect on the exchange rate will effect their trade goals. So then why would they ever do that? Ah yes because of the risk of not getting paid! Foreigners will have doubts, the task of funding budget deficits will be more difficult, yada, yada, yada. Refer 10 year treasury yields.

    foreigners won’t buy bonds fallacy — they acknowledge that almost half of treasuries are in foreign hands but conclude that foreigners are buying treasuries to try and control bilateral exchange rates! Foreigners accumulate US dollars from trade, i.e. they have the dollars when they buy the treasuries, i.e. the currency exchange has already taken place via world trade. Taking those dollars they now have and using them to buy treasuries won’t “control bilateral exchange rates”

    • damn tiny edit boxes! should use the resize 🙂

      the second last paragraph overrides the last one. On first reading it felt like they were saying that the act of buying treasuries in itself helps control exchange rates. No one would surely believe that so on a second read it looked like they were making a “what you do with your dollars” argument.

      but didn’t delete the last paragraph

  2. Mad Adam capitulates on his ‘strong global growth’ story…

    Concerns have now turned to global growth or, more specifically, whether there is any. I have to agree that this time it’s not without good reason. First time though. So we found out on Friday night that US economic growth was much weaker in the first quarter than initially estimated, revisions taking growth from +1.9 per cent to +0.4 per cent. Growth in the second quarter wasn’t much better, rising 1.3 per cent. Looking further afield, most of the global PMIs – for Europe (confirmed at 50.4 in July) and China etc have slipped to the 50 mark or just below and then last night we found out that the ISM index fell sharply from +55.3 to +50.9. Remember that a reading over 50 generally indicates expansion in the manufacturing sector, below 50 a contraction. Similarly a reading over 42.5 generally indicates an expansion in the overall economy.

    • You left out a choice quote Lorax:

      Remember that QE was initially sold on the idea of deflation and depression. Neither of which are a threat now.

      The bullhawks are convinced that inflation is the only problem (solved by sacking workers or “freeing up labour”, increasing the debt burden and reducing wages by raising rates), when the real problem is wages are too low and debt is too high.

      To quote George Carlin, “I’ve got a front row ticket to this freak show, and I’m taking notes”

    • Can’t wait to see the revised 1.3% number. As ZH pointed out, if the Q1 GDP was .4% then the US economy actually grew in Q2. More statistical BS.

  3. A curious comment from Chris Joye today…

    I have argued that it was a mistake not to hike in May, a position that subsequent data have well and truly vindicated

    One wonders what data Chris has seen since May that suggests the domestic economy or housing market is strong enough to sustain further rate rises?

    (Outside of last week’s inflation number that has been comprehensively debunked)