The "R" word

Here’s a bit of proof of our assertion that the bond market is better at forecasting recessions than the Wall Street economists. Apparently in March 2001, the first month of the last US recession, 95% of US economists were predicting that there wouldn’t be one, and the average forecast growth rates for Q2 and Q3 were 2.2% and 2.3%. This New York Times article suggests that because recessions ar…

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For all you yield curve geeks

We’ve mentioned the crystal ball-like qualities of the US yield curve a couple of times on this blog. In May Jim showed that it can be a good predictor of recession (read article here), and the San Francisco Fed has recently published this interesting piece that adds weight to the argument.

There is some statistical analysis within the article, but in short it concludes that the yield curve is …

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"How I saved the global economy" by Alan Greenspan

We have just 17 days to wait till the publication of Alan Greenspan’s autobiography, "The Age of Turbulence: Adventures in a New World". It’s 544 pages long, so hopefully nobody will buy it for me for Christmas, but from the synopsis that’s been released we learn what a great job he did of saving the world:

The most remarkable thing that happened to the world economy after 9/11 was …nothing. Wh…

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US house prices experience record fall

It was announced yesterday that US house prices fell by 3.2% in the year to the end of June, according to the S&P/Case-Shiller house price index. As the chart to the left shows (click to enlarge), this is the most severe slide since the index began in 1988. It is worth emphasising that this data does not include the turbulence of the past couple of months – things may have deteriorated much fur…

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Will this financial crisis send the US economy into recession?

Angelo Mozilo, the chief executive of Countrywide (the largest US mortgage lender) seems to think so. His answer to the above question was that "I can’t believe…that this doesn’t have a material effect…on the psyches of the American people and eventually on their wallet".

He certainly has a case. This chart (click to enlarge) plots US economic growth since the mid 1980s, and I have annotated t…

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US jobless rate is to climb sharply

Unemployment in the US has remained remarkably low in the face of the recent economic slowdown, partly because unemployment has traditionally been a lagging indicator. Labour market rigidity means it’s not possible to immediately make workers redundant when there’s a slump in demand (even in the hire & fire US economy).

But the unemployment rate looks finally set to turn. US initial jobless c…

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The real &#39AAA&#39 bull market

The flight to quality is in full flow. We’ve written a few comments recently covering goings-on in the money markets, and on Wednesday the huge demand for money market funds in the US meant that the yield on a three month US Treasury Bill saw its biggest one day fall since 1989. US interest rate futures are now pricing in two 0.25% US rate cuts by the end of this year, with another rate cut in …
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To hike or not to hike?

Back in April I wrote that I believed the European Central Bank (ECB) would take its key interest rate beyond 3.75% to 4% and potentially beyond (see here). The ECB did indeed hike to 4% in June, where we currently stand, and pre-warned in early August that they would likely move to 4.25% at their September meeting.

However, the recent volatility and economic data have market participants ques…

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Sent to Coventree

Rather ironically, a Canadian investment company called Coventree has been ostracised by investors, and (almost) literally "sent to Coventry". Coventree Inc, which specialises in structured credit, saw its share price fall by 32% on Monday and by 72% yesterday after the recent credit crunch meant that it was unable to refinance C$700m (about £330m) of maturing debt. After failing to refinance t…

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Carry On Regardless

Following on from my comment on Friday, it’s interesting to note that the Bank of England has so far refused to pump liquidity (Ooh matron) into the UK money markets, and as a result, the UK overnight interest rate is currently 6.5% (click on chart to enlarge).

Mervyn King (who is one of the hawks in the MPC) last week said that credit turmoil might be a good thing if it persuaded investors to…

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