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macro and politics

The Signal and the Noise – why local weather forecasters get it wrong, and what it means for those big market calls

I’ve finally got round to reading Nate Silver’s The Signal and the Noise. It’s a brilliant analysis of why forecasts are often so poor, from the man who called every state correctly in the 2012 US presidential election. In short, predictions are often poor because they are too precise (asserting an absolute outcome rather than assigning probabilities to outcomes); there’s often a bias to overwe…

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The Great Compression of peripheral to core European risk premiums

Are investors still compensated adequately for investing in peripheral rather than core European debt, or has the on-going convergence eroded debt valuation differentials altogether? In his latest blog entry, James highlighted five signs indicating that the bond markets consider the Eurozone crisis resolved. Inter alia, James pointed out that risk premiums for peripheral vs. core European high …

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Jim Leaviss’ outlook for 2014. The taper debate (watch the data), inflation (where is it?), and it’s a knockout. Merry Christmas!

With many expecting a ‘great rotation’ out of fixed interest assets in 2013, bond investors will, in the main, have experienced a better year than some had predicted 12 months ago. It might not always have felt like it at the time – indeed, over the summer when markets were sent into a spin by the prospect of the US Federal Reserve (the Fed) cutting its supply of liquidity earlier than expected…

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Why the US Dollar now looks cheap against, well, basically everything

Back in January I wrote about why we loved the US dollar and worry about EM currencies, and did an update on EM in June (see EM debt funds hit by record daily outflow – is this a tremor, or is this ‘The Big One’?).  Another EM piece will follow soon (the short version is that while it was ‘just’ a tremor,  I’m increasingly worried that ‘The Big One’ is coming).

The US Dollar was strong through …

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Italy: the good, the bad and the…politicians

Italian politics has been in the international news, again. Markets tend to fear instability and Italy is always a creative and boundless source of uncertainty. We Italians have a wonderful ability to put ourselves into trouble. The good news is that markets in recent weeks have held up more than in the past.

Italy risk premium

1 – Political life in the peninsula

In the last few weeks, research from many well-kn…

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Asian currency wars; is China really the ‘currency manipulator’?

Ever since the Asian financial crisis in 1997, Asian economies have generally engaged in a policy of maintaining artificially cheap currencies in order to generate export-led growth. This led to substantial political pressure being placed on Asian countries, primarily from the US, to allow their currencies to appreciate.

The problem facing export dependent Asia is that this growth model has now…

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Should the people of Middle Earth have done Quantitative Easing to mitigate against Smaug’s tight monetary policy?

Any blog that begins with the words “Smaug the dragon is typically viewed as a fiscal phenomenon…” has immediately got my attention. Please read The Macroeconomics of Middle Earth by Frances Woolley. Woolley compares the size of the dragon’s hoard with a picture of the gold reserves at the Bank of England – although it is likely that Smaug is the beneficial owner of his gold, rather than a cust…

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Metroboom – Lessons from Britain’s Recovery in the 1930s by George Trefgarne. And win a copy!

In my last blog, about the many positive signals for US housing and the massive potential for that to drive US growth over the next couple of years (see here). I mentioned that I’d met recently with George Trefgarne, the author of a Centre for Policy Studies booklet called Metroboom. In it he pointed out how important housing construction had been in the UK’s recovery from the “slump” of the 19…

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What should Mervyn do with his QE gilts? Free finance.

Jim recently discussed the merits of officially cancelling the gilts bought back through QE, so I thought I would discuss another option that maintains the status quo through the Bank of England (BoE) simply rolling over the QE gilts into new gilts at maturity.

In order to understand the results of this process it is useful to re-examine how QE works.

Simply, QE is the willing exchange of gilts…

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Paying the locusts – what the PSI means for Greek bond investors

Early this morning it appears that at last Greece and the European authorities are at the final stages of  launching a bond swap with the private sector – known as the private sector involvement (PSI) procedure – which will aim to reduce Greece’s debt-to-GDP ratio to 120.5 percent by 2020 (currently 160 percent). The deal will receive blanket press coverage, we are going to focus on the PSI ele…

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