Deflation might be coming, but will it really stay until 2018?

Inflation-linked bonds around the world have seen heavy losses in the past couple of months. 30 year UK index linked gilts are down by nearly 20 points (15%) since August, with similar selloffs seen in the US and European markets. After the inflation scare of the first half of 2008, with oil hitting $140 per barrel and food prices rocketing, the markets are suddenly realising how quickly global…

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The 2008 Great Crash – an historical perspective

It’s always very hard trying to get a sense of historical perspective, particularly when you’re living through something that will be discussed and debated long after we’re all gone. I think this chart helps. It shows the S&P going back to January 1928, and I’ve used a logarithmic scale so that you can get an idea of how this crash compares to those that occurred in previous eras.

The 30% fall…

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Mums go to Iceland (to get their savings back)

Readers of our blog in spring ’07 were probably a bit bemused as to why we were banging on about a little island over 1000 miles away from continental Europe, with a population the size of Sunderland/ Venezia/ Gelsenkirchen/ Cordoba/ Strasbourg/ Pittsburgh. It’s pretty clear now – Iceland is probably the world’s best example of the credit bubble, and the subsequent credit bust. Icelandic compan…

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UK housing market and rate cuts – are we nearly there yet?

In light of the news of recapitalisation of the UK banking sector (which Ben alluded to in his blog yesterday afternoon here) and today’s coordinated global rate cuts, I thought it would be an appropriate time to see whereabouts we are on the road to recovery.

The route map we have been following has been laid out on this blog over the past 18 months (see last comment here), and is updated in …

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Sick financial markets – a recap(italisation)

One of our credit analysts came up to me on Friday and told me to pull my finger out and get something on the blog. So apologies for the lack of comments from mid-September. As you can imagine, things have been rather busy.

A lot has happened in the last few weeks and I thought I’d shed some light. The credit cycle has turned. Abundance of credit has given way to its utter scarcity. Companies –…

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The demise of 'supersub' bank bonds

The original ‘supersub’ was the ginger scouser David Fairclough, famed for coming off the bench to rescue the mighty Liverpool FC. The financial markets themselves have returned to the 1970s with chants of stagflation and bank failures emanating from city players. Everyone is fully aware of sub prime, but as I explained in the FT today (see here), corporate bond investors’ main concern should b…

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On banks, and monetary policy mistakes

Many people blame the banks’ woes on a lack of regulation of the banking industry and the leverage that banks have built up over the past few years. This is certainly an important factor, but is only part of the story.

Conventional wisdom says that the mess that the banks are in is due to a lack of regulation, which meant that banks did things that they shouldn’t really have got involved with….

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Deleveraging and asset prices – the ‘Minsky moment’ revisited

I think it’s worth looking back at a comment I wrote in November last year on how the global economy had reached a ‘Minsky moment’. In brief, economist Hyman Minsky unerringly predicted the boom and bust of tech stocks, and events of the last few years have followed the same classic Minsky pattern. Minsky argued that periods of stability breed periods of instability, where prolonged economic st…

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'Reality leaves a lot to the imagination' John Lennon

Lunch yesterday with a member of the ECB, who will have to remain nameless, was an interesting affair. The usual hawkish noises around inflation remaining stubbornly high, the need to avoid second round effects and the damage to the Eurozone that would be borne out of an inflationary spiral were entirely expected. Indeed I have some sympathy with the ECB. Their mandate, as I’ve mentioned before…
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Letter from Washington DC

Our chief economist, Steven Andrew, and I are just back from a research trip to Washington. To some extent our visit was overtaken by this weekend’s events and the government bailout of the GSEs (Freddie Mac and Fannie Mae), but there was tangible nervous excitement in the air that anticipated that something big was about to happen – plus we’d had the shocking rise in US unemployment out on Fri…

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