Global Macro

11

King dollar

FT Alphaville today catches up to reality with an explanation of movements in the $US: Take everything you ever thought you knew about foreign exchange and bin it. According to HSBC’s stellar FX guru David Bloom, currency markets are trading through the looking glass, and will continue to do so for some while. As he noted

18

Is Greece Lehman II?

Over the weekend came this news from the WSJ: French Finance Minister Christine Lagarde signaled Paris might support a rescheduling of Greek debt, warning that Greece is at risk of default if it doesn’t do more to bring its public finances into order. The comments mark a shift in France’s position in a debate that

21

Emerging vs developed: the great divergence

Perhaps an underappreciated consequence of the 2008 global financial crisis has been a great divergence in the fortunes of developed economies and those of emerging markets. In its May “Secular Outlook“, the bond fund manager PIMCO has some very nice charts that illustrate this process well. First, while the debt levels of G20 advanced economies

21

Is QE setting markets up for a crash?

As highlighted today by my colleague Houses and Holes, a growing number of commentators — most recently Richard “Balance Sheet Recession” Koo — are weighing in on on the folly of quantitative easing and the risk that it poses for asset prices. The main charge is as follows. As The Bernank himself has hinted at

24

Richard Koo on QE3

Mr ‘balance sheet recession’ himself holds forth on the follies of QE. Highly recommended reading… As I spoke with investors in London and Geneva last week, markets were rocked by a resurgence of fiscal problems in Greece and a steep drop in the price of silver andother commodities.In London there was talk in the market that the drop in commodity

12

Grantham calls the top

For those of you with a memory longer than a few days, it was Jeremy Grantham of GMO who famously called the bottom in the great GFC equity rout. Whilst I never put anyone on a pedestal, Granthan is one of the few equity strategists that sees the way markets actually work these days. Overnight

22

Mirror image

It’s an advanced Western nation with historically weak household debt and rising savings, booming exports but a weak external position, a set of cunningly guaranteed too-big-to-fail banks, slumping house prices and a dramatically two-speed economy. Pop quiz: Is it the US or Australia? It’s a trick question because the answer is it’s both. Last week

15

Weekend Musings: AFG, Turning bearish, Budget and Greece

Another weekend, another dive into what is rumbling around my thought box. AFG Mortgage Index. AFG’s latest mortgage report came out this week. Their overview of the lending market was fairly bearish. AFG, Australia’s largest mortgage broker, has called on the Government to address weak consumer confidence, after figures for April showed mortgage sales fell

27

Milk money (QE3)

That was no ordinary night. The $US doesn’t bounce 2% without some serious spur. And the entire commodities complex (CRB) down 3.5%! This is a similar signal to the flash crash of last year, which presaged the sell off into the double-dip funk of mid last year. Here we have the first signal of the triple-dip

20

The century of old age

As mentioned previously, the 21st century will be the century of old age, where declining birth rates meet longer life expectancies. This ageing of the population will affect many areas of the international economy, from consumption and growth to asset valuations. The impacts from ageing will likely be most acute in Western Nations, although some developing countries, most

19

Inflation expectations my butt

So, Bernanke has given markets what they need to hear. First, it’s damn the lifeboats on commodities inflation: Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to

4

Mixed signals

There’s a lot of noise today. And yes, it’s threatening to be a “risk off” event. Some typical signs are there. Gold is up. Commodities and the Aussie are down. The euro got monstered. The $US bounced hard. But it isn’t that simple. Grains are up solidly which is definitely a growth/inflation play and there

2

Europe’s new issues

As I noted in my previous article on Portugal the Fins have been posturing for more serious austerity from the PIIGS. It seems however that as of today the circumstances in Finland have changed somewhat and the outcome for the rest of Europe could have just become far more difficult. A Finnish election has just been

6

Global inflation surging

China, India, Europe, UK and even US inflation is accelerating sharply at the moment. Data over the weekend reinforced that the period of ultra-low rates is probably ending and rates might move more sharply than markets expect even with growth not yet assured.   Over the weekend the PBoC increased the reserve requirements for their

15

Yellen’ won’t help

I’m going to wonder off the reservation a little today and talk about the Fed, its balance sheet and risk assets.   Janet Yellen is Vice Chair to Ben Bernanke at the Fed. She is one of the Fed Governors. I always thought she was pretty switched on but last night she gave a speech 

6

Two speed world

The IMF released it’s quarterly growth update overnight and it’s worth a read. The full report is available below. The introduction argues: The world economic recovery continues, more or less as predicted. Indeed, our growth forecasts are nearly unchanged since the January 2011 WEO Update and can be summarized in three numbers: We expect the world economy to grow at

20

Here we go again

Well here we are again. Not that it wasn’t obvious, I have previously talked about why, and also about the Greek mess, this is no different. Europe’s wealthy countries looked to Portugal to resolve the year-old euro debt crisis by coming up with “sustainable” deficit cuts to pave the way to an 80 billion-euro ($116 billion)

3

Boom and bust is back

With Brent and WTI crude both surging to post-GFC highs Friday, I’m beginning to suspect that the world has entered a new era of oil price and growth volatility that spells the end of the Great Moderation. Why so? Supply and demand are the key to all things economic.  Previously at this site, the Unconventional

3

Risks to the Aussie

The question I asked last week about Chinese growth and iron ore demand seems to have been answered for now. That question was the following: Not only has the market not priced a significant, if cyclical, China slowdown, if it comes, Chinese steel makers may very well enter an inventory cycle that liquidates some portion

7

The cost of zero

In an era of extremely low interest rates in most of the developed world, pricing the cost of equity capital becomes a real problem. When debt capital is close to zero, then equity capital theoretically becomes extremely cheap, too. The 90 day Treasury bill is at 0.24%. Translating that into an earnings multiple (by turning

12

Quantitative unease

Any critical analysis of the period leading up to the GFC lays some of the blame of the bubble that built at the length of time that Chairman Greenspan left rates in the US incredibly low after the September 11 attacks. Certainly there were many other and much more important drivers of the debacle that

17

Leigh Harkness on debt saturation

In a follow up to his previous post please enjoy Leigh Harkness’s latest guest post on “Debt Saturation”. Many years ago, I tried to identify the relationship between money and inflation. I could not find a general rule for all situations, but for certain countries who adopted “pure” float, I found that inflation was equal

19

Hyper-inflation is here

Last weekend, the MacroBusiness New York bloggerspondent, Rotten Apple, mounted an interesting critique of the dominance of neo-liberal economics in the face of mounting evidence to the contrary.  It details the hypocrisy of our times: how a global debauch by the financial sector — one of the most irresponsible collective acts, or thefts, ever seen

13

Guest Post: Leigh Harkness

I discovered Leigh Harkness’s web site a few months ago while doing some research on foreign trade.  His site so intrigued me that I contacted him to see if he would be interested in doing a series of guest posts about his research and experience in his little understood area of economics. Leigh accepted my

7

Intervention and the AUD

AUD/JPY and USD/JPY are up sharply at present on the back of comments from Japanese Finance minister that G7 countries will intervene to support the Dollar (sell Yen). There is also talk they will buy stocks which is what the HKMA did during the Asian crisis. The New York Times just sent a release out

4

Late to the party

As governments far and wide wake up to the danger of fallout in Japan, one is tempted to conclude that the crisis is past its worst. Governments have a habit of coming late to the party. But, in this case, I’m not so sure. I continue to think that markets are underestimating the damage being

9

Japan’s critical moment

An hour ago the IAEA released the following: Temperature of Spent Fuel Pools at Fukushima Daiichi Nuclear Power Plant Spent fuel that has been removed from a nuclear reactor generates intense heat and is typically stored in a water-filled spent fuel pool to cool it and provide protection from its radioactivity. Water in a spent

4

Japan Update 2

The situation in Japan seems to have just got considerably worse. From the BBC live feed. 0325:More on that news conference by Chief Cabinet Secretary Yukio Edano. He said: “At around 0830 today, at Fukushima Daiichi nuclear power plant, white smoke has been seen coming out of reactor three. And regarding this, currently we are