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The improvement in the US jobs market is quantitatively huge – but qualitatively mediocre

The condition of the US labour market is one of the hot topics in the ongoing “will they / won’t they” Fed rate hiking debate, and as Bloomberg’s Economic Surprises screen shows, this sector is the only area of the economy outperforming expectations of late.

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Labour market indicators continue to impress, with employment indicators strong on many measures. Initial Jobless Claims have dropped to …

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Krafty work – 3G and Berkshire Hathaway continue to play the arbitrage theme

Almost two years ago to the day we wrote about a return of animal spirits, the LBO of Heinz by Berkshire Hathaway and 3G, and the significant role debt had to play in the transaction. Yesterday Heinz announced that it is to merge with Kraft Foods to create the fifth largest food and beverage company in the world. The transaction will see Berkshire Hathaway and 3G invest an additional $10bn in t…

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An interview with Richard Koo: The Escape from Balance Sheet Recession and the QE Trap

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For years the Western world mocked Japan’s attempts to recover from its spectacular debt-fuelled boom and bust, blaming the Bank of Japan for doing far too little and far too late, and lamenting Japanese fiscal stimulus as extreme recklessness, where the only achievement has been to propel Japan’s debt levels into the stratosphere.

Now, seven years after much of the developed world’s own debt …

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2015-03 blog

Falling consumer and oil prices may not provide the boost to growth many are expecting

The spectre of deflation currently haunts central bankers around the world, though many of us would question whether the true effects of falling prices are being felt in the real economy and more importantly in consumers’ wallets.

According to the results of the M&G YouGov Inflation Expectations Survey over the past two years, European consumers often believe that inflation in one and five year…

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UK politics: “The most difficult election to call in the post war period”

As the old adage goes, markets don’t like uncertainty. And yet in just under two months we have a UK election, about which the only degree of confidence that anybody has is that the UK will have a second successive hung parliament – the key question is whether the UK ends up hung to the left, or to the right, or we get a potentially painful outcome somewhere in between.

So we thought it worthwh…

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The Middle-East – an expensive safe haven for bond investors

I am just back from a fascinating investor trip to the Middle-East, where I spent a week meeting with corporate and government bond issuers as well as market participants in the United Arab Emirates (UAE). We spoke at length about Islamic finance, the oil price impact and geopolitical risk.

When I asked the question of the oil price impact on the region to corporate issuers and government offic…

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The falling US unemployment rate could benefit some emerging markets

The declining unemployment rate in the US has renewed the debate on the timing and pace of monetary tightening by the Fed. While wage pressures have been muted thus far, the risk is rising that further declines of unemployment will lower the rate below non-inflationary (NAIRU) levels and prompt the Fed to start hiking.

For emerging markets, one of the main transmission mechanisms is through wea…

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Goodbye to War Loan: 1917 to 2015.

Today, the War Loan issued in 1917 to help finance Britain in World War 1 is finally redeemed. We’ve written about it repeatedly over the years as it has always fascinated us. Was its coupon cut in 1932 a form of default from the UK government? Does George Osborne’s claim that it is being redeemed this year as a result of a tight grip on the public finances ring true?

To commemorate this most i…

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Video: Jim & Mike go to NY to ask the big question. Will the Fed hike in 2015?

Have you seen the film The Day After Tomorrow? The one where U.N. officials foolishly ignore climate scientist Jack Hall (Dennis Quaid) and a super-storm plunges New York into a new Ice Age? Well it was colder than that last week when Mike and I made a research visit over there. With wind-chill it was a billion below. I was only able to survive by laughing at Mike forgetting to wear a hat and g…

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Operation normalise

The Fed has basically used three major themes in response to the financial crisis from a monetary point of view:

  1. Lower short term rates
  2. Quantitative easing
  3. Operation twist – an attempt to flatten the yield curve

The Fed has communicated that it now expects the first move in normalising rates as the economy recovers will be to increase short term rates. Personally I think there are other alter…

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