Monthly Archives:

May 2012

Office of National Statistics or Office of National Savings? The Future of the UK’s RPI-CPI wedge

There has at almost all times been a ‘wedge’ between RPI and CPI, given different calculation methodologies (arithmetic mean vs geometric mean, respectively), different items within each, and different weights of these different items. The long term difference has on average seen RPI at 0.5% to 0.8% more than CPI. Recent changes, though, saw the wedge widen in 2007 to more than 2%, and to almos…

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High Yield Default Rates Finally Starting to Rise

Default rates for high yield bonds have started to rise from a low level over the past few months. The trailing last 12 month default rate for Global High Yield was 2.7% in April, having bottomed out at 1.8% in October 2011 according to data from Bank of America Merrill Lynch.  This in itself is not unexpected as default rates were running at historically low levels, helped by very loose moneta…

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Bail-ins: Damned if we do; damned if we don’t

We have written on numerous occasions about the hitherto inseparable links between sovereigns and banks, and we have also written about the benefits of writing down bonds to create capital  (see The New Era for Bank Bonds: Send In The Clowns? and Equitisation of bank capital bonds) . In 2007 the global markets woke up to the fact that the US subprime market was blowing up, and in 2008 realised …

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Eurozone heading for breakup

We’ve had a huge number of requests for an update on our thoughts on what’s going on in Europe.

Attention has suddenly focused on deposit flight and the risk of bank runs in the Eurozone.  Deposit flight is an entirely rational response to the perceived increase in risk of the single currency disintegrating, since presumably the new Deutschemark would immediately appreciate dramatically against…

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Brazil – a video from Sao Paulo. Hot money, an aggressive central bank and 140 kms of traffic jams.

I joined 20 million other people in Sao Paulo last week on my first trip to Brazil.  I made a short video of a few thoughts on the economy and the challenges faced by emerging market economies now deemed to be “the new risk free”.  Brazil was the last of the BRICs that I’ve visited – it also turned out to be my favourite.

 

Erratum: in the video I mention that I’d spotted a footballing talent …

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From The Politics Of Economics To The Politics Of Society

As we had a three day weekend last week I used the opportunity of an extra day off to catch up on some reading. One of the pieces I read struck me as particularly pertinent given the elections on the continent last weekend. Woody Brock, the founder of the economic advisory service Strategic Economic Decisions (SED), regularly puts out thought provoking research reports discussing various topics…

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RBA slashes interest rates – the lucky country is getting nailed

Today the Reserve Bank of Australia (RBA) surprised markets by cutting official interest rates by 0.5% to 3.75%. Weaker inflation data out last week and a deluge of soft economic data has got the RBA rattled. We’ve discussed bubbles down under on this blog before and think that a combination of a falling terms of trade, a current account deficit, a deleveraging consumer, below target inflation,…

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