Posts from Tuesday Feb 18 2014

The Closer

FURTHER FURTHER READING

- Kevin Roose crashes a Wall Street secret society.  Read more

An EM credit crunch, not a sudden stop

This post by Gavyn Davies has been cross-published at Gavyn’s own blog.

The crisis in the emerging markets’ “fragile 8″ , which threatened to sweep all before it a few weeks back, seems to have settled down almost as quickly as it erupted onto the scene. Investors are already asking whether it is now safe to enter the undoubted attractive valuations in the emerging world. Read more

TIC Tock for China’s USTs?

Earlier on Tuesday we proposed that one of the reasons gold was rising was because the market, despite the taper, was still being overloaded with liquidity relative to the number of safe US assets in circulation.

But we’ve also speculated in the past that if and when China begins to unwind its US Treasury stock, as it may be forced to if it needs to defend the RMB from devaluation, then the Treasury stock it releases could end up injecting a fair number of dollar assets — at least on a temporary basis — into the global dollar system.

The sequence of events might consequently look something like this: Read more

I love the smell of carry trade in the morning

That isn’t one of the pungent lines from a BofAML note on Tuesday — dissecting “an international leverage binge, yet another carry trade, the third in 20 years,” by issuers of corporate bonds in emerging markets.

But there are plenty already:

The Fed giveth and the Fed taketh away

The long-term emerging market equity story is the story of wars

In each cycle, risk morphs – we repeat the mistakes of our grandfathers, not our fathers.

That, and a call for this $2trn carry trade to unwind as the Fed begins rolling liquidity back. Which makes investing in EM not so much about EM — as about what the Fed will be doing as it exits policy.

 Read more

Markets Live: Tuesday, 18th February, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

China’s central bank has drained Rmb48bn ($7.9bn) from money markets || BoJ maintains expansionary monetary policy || Banks review rules on forex traders betting own money || Barclays bankers face Libor charges || Head of Vitol calls for reform of Brent || Iran’s Bank Mellat sues UK Treasury in $3.9bn lawsuit || BHP Billiton posted a 31 per increase in profits in the first half || Alcoa to cut smelting capacity || Temasek seeks to sell $3.1bn Shin Corp stake ||  Read more

Time to stop obsessing about central banks

George Magnus, former chief economist at UBS, writing in a private capacity on his blog, says central banks can’t do much more to support the economy and it’s time to stop obsessing about their every policy manoeuvre because it’s counterproductive.

In his opinion, the economy’s future health lies in structural adjustments which can only be implemented and organised by government. The burden of responsibility, meanwhile, has only been placed on central banks because of bad politics, which have prevented necessary fiscal and structural action being taken. The sooner we realise this, the sooner we can make progress. In the meantime, he says, it’s best for central banks to remain reassuringly vague so as to put the onus on progressive government action and step out of government’s way. Read more

Which macroeconomists missed the Global Financial Collapse and when did they miss it

Noah Smith argues that professional macroeconomists have done a fine job since the Global Financial Crisis of incorporating finance into their models. Nonetheless:

… it would have been even nicer if macro had picked up on the finance thing more strongly before 2009. Then we might have been better prepared. Instead, macroeconomists in the 2000s and the 1990s were focused almost entirely on explaining the last big business-cycle events – the stagflation of the 70s (which seemed to fit with RBC models) and the Volcker Recessions of the early 80s (which seemed to fit with New Keynesian models). Read more

The FRRP is not enough

Gold has been rising steadily since the start of the year.

Given the US taper, this might seem counterintuitive, especially if you believe that “money printing” should always justify higher gold prices.

But, as usual, everything is relative. Read more

Further reading

Elsewhere on Tuesday,

- A theory of troubles.

- Wall Street secret societies need better security and better jokes.

- No robots now, not ever.*

- Measuring economic progressRead more

The 6am London Cut

Markets: “Asian stocks rose, with the regional benchmark index poised for a three-week high, after the Bank of Japan stuck with a plan for unprecedented asset purchases and boosted lending programs. Chinese shares fell as the central bank drained liquidity from the financial system.” (Bloomberg) (FT’s Global Markets OverviewRead more