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macro and politics

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A message to Brazilian tourists: stop travelling abroad and help your country

S&P placed Brazil’s foreign currency ratings (BBB-) on negative outlook yesterday, only one small step away from junk. S&P’s negative outlook implies that there is a probability higher than 33% that Brazil’s rating will be subject to a downward revision in the next 18 months. According to the statement, S&P “could lower the ratings if there were further deterioration in Brazil’s external and fi…

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EU implicit interest rates

Greek debt forgiveness: Where there’s a will, there’s a way

The Euro Summit meeting in Brussels that took place a couple of weeks ago seems to have finally provided some temporary closure to the Greek debt crisis. The dreaded Grexit scenario was avoided (at least for the moment) and the Greek government was able to repay its arrears to the IMF and the ECB using the €7.2 billion bridge loan provided by the European Council. Looking ahead, this short term…

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The Euro, confidence and consumption will drive European GDP

It has been difficult to filter through the noise of the Greece situation these past few months. But when you stop and have a look at the economic backdrop, things don’t look as bad as some of the alarming headlines might have you believe. Some significant economic headwinds have turned into tailwinds, which will likely drive European growth for the next 18 months.

1. The Euro

In April, the Eu…

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Last week: the election, the abolition of physical money, and how Tesla’s new battery is going to change the world and save us from a future zombie apocalypse

Here are a few quick thoughts about things that happened last week.

First, the UK election and the failure of the opinion polls. Ahead of the General Election we met with several of the big opinion pollsters, and even ran a Bond Vigilantes x Politics event featuring Anthony Wells of YouGov. Without exception they highlighted how unusual it was that, whilst the Conservatives appeared to be neck …

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15.04.16 blog RW

Greece, the currency vigilantes and the Expulso solution

It has been a while since we have discussed the economics of the single currency, but once again the issue of its suitability for all its members is at the forefront of economic concerns, as Greece faces some difficult decisions.

The financial crisis has taught us a number of lessons: fiscal policy works, monetary policy works, better regulation is beneficial for the financial sector, confidenc…

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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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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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Coming to a bond market near you: “A Brave New World: Zero Yield Corporate Bonds”

Picture the scene: a meeting room, 40 floors up, plate glass floor-to-ceiling windows with views of central London in the background. At the polished mahogany table sits Hans Schmidt, the CFO of a major consumer global goods company. In walks Chad “Ace” Jefferson III, the latest in a long line of investment bankers assigned to cover his company. Behind Chad follows an entourage of five impeccab…

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2015-01AD blog

Europe needs a German fiscal stimulus package but won’t get it

The German government can theoretically borrow at negative yields if it were to issue short maturity debt today. Longer maturity debt is also yielding a record low amount. Could the collapse in yields be a blessing for Germany and Europe? Two economists at the International Monetary Fund (IMF) seem to think so. Indeed, the German government’s narrow-minded pursuit of the “black zero” (a balance…

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Long US Treasury bonds are overvalued by 250 bps. Discuss.

As we started 2014 the US Treasury market was expecting 10 year yields to be at 4.13% in a decade’s time. This 10 year 10 year forward yield, derived from the yield curve, is a good measure of where the bond market believes yields get to if you “look through the cycle”, and disregard short term economic trends and noise. I wrote about it here and suggested that we were approaching the top of th…

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