Monthly Archives:

October 2007

US economy could be in a worse state than data suggests

See this link for an excellent summary of the impact of recent financial developments on the US economic outlook from Janet Yelen, President of the Federal Reserve Bank of San Francisco.

She concludes:

“In determining the appropriate course for monetary policy, we must recognize that most of the data available now reflect conditions before the disruptions began and, therefore, tell us less ab…

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Letter from Toyko

I was in Tokyo with Richard Woolnough-san last week. We think the perma-bears on the Japanese economy are wrong, and that some of the official economic statistics are masking an underlying recovery. There are some significant structural changes happening in the economy: for example, participation in the labour force by younger women is increasing dramatically, and immigration is increasing (alb… Read the article

High &#39real&#39 interest rates will slow the UK economy

When the Bank of England meets every month, market commentators always focus on the nominal interest rate. But what many people fail to realise is that it’s not the nominal interest rate that matters, it’s the real interest rate (ie nominal interest rates minus the inflation rate). If nominal interest rates rise from 5% to 6%, but inflation jumps from 2% to 4%, then real interest rates have act…

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Head Scratching Stuff

The dichotomy in asset markets has many, myself included, scratching their heads. Whilst the last four months have seen falls in the European and US high yield bond markets of approximately 1.3% and 2.9% respectively, equity markets have continued their upward trend. In fact, over the same time period the DAX has returned circa 0.8%, the S&P 0.9%, the DOW 3% and the MSCI Emerging Markets Index …

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Is the UK housing market on the brink?

The housing market is the transmission mechanism between Bank of England base rates and the UK consumer. The B of E cuts interest rates to encourage borrowing, which causes house prices to rise and homeowners’ pockets to swell. Higher interest rates slow the economy by restricting borrowing and suppressing the housing market. The state of the UK housing market is therefore one of the most impor…

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