This is a guest post from Richard Koo, chief economist of the Nomura Research Institute and, amongst many other things, author of “The Holy Grail of Macroeconomics, Lessons from Japan’s Great Recession”, which lays out his balance sheet recession thesis in detail.
The post is an updated extract from his most recent note for Nomura and reproduced here, with his permission, for your arguing pleasure…
The US, the UK, Japan, and Europe all implemented quantitative easing (QE) policies, but the understanding of how those policies work apparently differs greatly from country to country, leading to very different outcomes. With the US economy doing better than the rest, there has been some debate in Europe as to why that is the case. Read more
By Jennifer Hughes in Hong Kong
Last time China’s companies held this much money to hand, it presaged an investment boom and better growth. But no-one is predicting that this time round.
China’s M1, or its narrow money supply, jumped 24.6 per cent in June while M2, the broader measure, rose 11.8 per cent. The gap between the two is now at its highest since January 2010 – and it is rising sharply. Read more
FT Confidential Research will be hosting an intimate ‘up, close and personal’ China session at the FT’s Festival of Finance this coming Friday at 2pm. It will take place in the M&G Coffee House area and be hosted by FT Confidential Research’s principal for China David Wilder, their chief economist Xiao Qi and head of research Sun Yu. This will be a chance to put your questions directly to the experts and benefit from their unique on the ground, regional perspective. Here follows their analysis of whats’ been going on in China’s shadow banking sector whilst we’ve all been distracted by Brexit.
In some respects, Brexit has been a gift for Beijing. The chaos in world markets unleashed by the UK’s vote to leave the European Union means a Chinese hard landing has slipped down the list of potential threats to global stability.
Not that Li Keqiang appeared particularly gleeful at this newfound loss of status when he gave his annual address this week to the World Economic Forum in Tianjin. Instead, the premier rolled out his government’s now-familiar tropes about the resilience of Chinese growth and the relative health of the labour market, again dismissing talk of an economic hard landing. Read more
This guest post is by Gudmundur Arnason, Permanent Secretary, Ministry of Finance and Economic Affairs of Iceland, in response to “Iceland’s selective default?”, another guest post, by Arturo Porzecanski.
Allow me to offer a brief comment on Arturo Porzecanski’s Guest Post of June 14 (“Iceland’s selective default?”). Read more
This guest post is by Arturo Porzecanski, a professor of international economic relations at American University (Washington DC), whose research and writings focus on creditor rights. He does not professionally represent in any way the creditors mentioned in the article. His opinions are his own and not those of the Alphaville team.
Iceland’s latest attempt to phase out its capital controls will soon entail what deserves to be characterized as a punitive, selective default on its obligations to the country’s foreign creditors. Read more
This guest post is by Jolyon Maugham QC, a tax lawyer at Devereux Chambers who writes on tax policy and advises the Labour Party.
In Les Amants, Jeanne Moreau is married to a newspaper magnate with little time for his younger wife. One day her car breaks down and she accepts a lift from a younger man…
The 1958 film won for its director the Special Jury Prize in Cannes. To the rest of us it gave a splendid tagline: “This was her moment! And nothing else mattered” and a rather less glorious definition of “hardcore pornography” as a result of its risqué scenes.
Here’s Supreme Court Judge Potter Stewart in Jacobellis v Ohio, a case that arose when the state of Ohio tried (and ultimately failed) to ban Les Amants on the grounds that it was obscene:
“I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description. And perhaps I could never succeed in intelligibly doing so. But I know it when I see it.”
Tax avoidance is a bit like hardcore pornography. To ban it you first have to overcome a tough definitional problem: what is it? Read more
In this guest post, Toby Nangle, the Global Co-Head of Multi Asset & Head of Asset Allocation, EMEA at Columbia Threadneedle, wonders whether rising wages caused by changes in demography could ultimately end the productivity slump.
Weak productivity growth has puzzled economists and policymakers but it doesn’t seem to have hurt investors: the period 2009-2016 might even be called “the Goldilocks Slump”. Ample slack in job markets ensured little bargaining power for workers, whilst central banks battled deflationary impulses with a combination of low (or negative) rates and asset purchases. The net effect has been falling real yields and tight risk premiums.
But productivity growth does matter. And we are nearing the point where its absence will be of overwhelming importance to financial market investors. Read more
This guest post from Manmohan Singh warns that while QE created excess reserves, removing those reserves from the system will have an important impact on the markets’ financial plumbing – and that will need to be incorporated in monetary policy decision making. Singh is the author of Collateral and Financial Plumbing and a senior economist at the IMF. Views expressed are his own and not of the IMF.
Expanded central bank balance sheets that silo sizeable holdings of US Treasuries, UK Gilts, Japanese Government Bonds (JGBs), German Bunds and other AAA eurozone collateral have placed central bankers in the midst of market plumbing. It’s now going to be very difficult for them to walk away from that role. Read more
A guest post by Peter Doyle, economist and former IMF staffer
I very much hope—and expect—that Brexit will be rejected.
But the 200-odd pages of HMT density on trade theory are intended to intimidate, not illuminate. They distract from the key issue; the impact of Brexit on the Euro. Read more
This post is from Gerard MacDonell, an economist at Point72 Asset Management, formerly SAC, from 2004 through 2015…
With the risk of recession and a return to the zero bound now prominent, there is renewed discussion of the Fed and Treasury coordinating to deliver a helicopter drop of money.
This would not work in the US because the inflationary implications of it would be too dire and because the Fed would predictably renege on its side of the bargain. Here’s why, as I see it. Read more
From Kate Mackenzie, former Alphavillain and current climate-finance think-tanker
Warren Buffett’s annual letter last week badly lets down any reader hoping to understand the implications of climate change for the general insurance and reinsurance sector.
If Buffett had said climate change impacts are not a problem for ‘his’ insurance companies, because his managers are managing the risks thusly, that would be fine. It’d also be a fascinating read, if it went into some detail — unlikely though, because that would reveal competitive information.
Unfortunately he chose to apply it to all of the insurance sector: Read more
By Rodrigo Olivares-Caminal, Professor in Banking and Finance Law at Queen Mary University of London and an expert and consultant in sovereign debt restructuring.
By David Beckworth
An increasing number of observers believe that the United State is inching closer to a recession. They see the stock market rout, plummeting oil prices, and falling inflation expectations as an ominous sign for the economy. Some also worry that the Fed’s raising of interest rates in December may have gotten ahead of the recovery. They fear this tightening of monetary policy could intensify these other dire developments and be the tipping point that pushes the economy into recession. Read more
A guest post by Peter Doyle, economist and former IMF staffer
An election with only one candidate? Doesn’t sound competitive. But with nominations just closed for Managing Director of the IMF, the one candidate, Madame Lagarde, will be reelected regardless. Read more
By George Magnus, an associate at Oxford University’s China Centre and senior economic adviser to UBS
Ok you guessed: we are not talking about Beijing. Read more
Charles Blitzer, an economist, former senior IMF staffer, and expert on sovereign debt management and restructuring, analyses Argentina’s recent offer to its debt holdouts — and advises a course correction for the government.
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Charles Blitzer, an economist, former senior IMF staffer, and expert on sovereign debt management and restructuring, says that talks between Argentina and its holdouts should start with signing a non-disclosure agreement.
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This guest post is from Lutfey Siddiqi, managing director at UBS Investment Bank, and Simon Smiles, chief investment officer for ultra high net worth at UBS Wealth Management. It’s on the back of a UBS white paper for Davos, which you can read here.
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Mitu Gulati and Bob Rasmussen — members of the law faculties of Duke University and the University of Southern California, respectively — argue that Puerto Rico has another route to restructuring its debts…
The federal courts have declared that Puerto Rico does not have the authority to enact an insolvency regime applicable to its public sector borrowers. Read more
By Peter Doyle, former IMF official and economist.
The line of China Bulls is that “things really aren’t that bad or surprising, and there’s considerable willpower and ammunition left in Beijing should it be necessary”. Read more
In this guest post, Erik Weisman, the chief economist of MFS Investment Management, explains why past Fed hiking cycles aren’t a good guide for predicting what will happen this time.
As the Federal Reserve prepares to raise interest rates, perhaps as early as the December meeting, many investors are looking at past rate hiking cycles for clues about how markets will react this time. Often we turn to the familiarity and convenience of what we’ve seen in the past to try to predict the future.
But that can make us look in the wrong place – and Fed tightening cycles over the last 30 or so years are simply not a good guidepost for what lies ahead. Read more
This guest post from credit strategist William Porter was provoked by the Goon Watch series on FTAV. Have a glance at that, if you haven’t already, then come back to read this considered smackdown…
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With Goldman raising the spectre of a $20 crude price, here’s an alternative scenario from Ecstrat strategist Emad Mostaque…
After years of being too high, oil forecasts now appear too low. As supply rolls over we could see prices back at $100, with decade-high geopolitical risks shocking it higher. Read more
By Christopher Balding, Professor of Economics at Peking University, HSBC Business School, and blogger at Balding’s World.
One of the major questions facing investors and analysts of the Chinese economy is how to size up credit… or more specifically the non-performing loan risk lurking in the system.
By Christopher Balding, Professor of Economics at Peking University, HSBC Business School, and blogger at Balding’s World. The TL;DR of this post might be that rebalancing the Chinese economy without a hard landing will be… difficult. Read more
This guest post is from Kate Mackenzie, a former Alphavillian who now works with The Climate Institute in Australia.
Anytime a public figure mentions climate change, you can guarantee a fierce response — and, sure enough, it happened again with Mark Carney’s speech on climate risk. Read more
This guest post is from Peter Doyle, an economist and former IMF staffer.
As the International Monetary Fund readies itself for its Annual Meetings in Lima next week, perhaps the key issue in its governance—the end of Christine Lagarde’s term as Managing Director in mid-2016—remains largely off the radar screen. It deserves prominence now. Read more
This guest post is from Simon Smiles, chief investment officer for ultra high net worth at UBS Wealth Management, and his strategist colleague Christopher Swann.
The latest transfer season in the UK was another record-breaker for the Premier League, with clubs shelling out £862m on players from other teams. That was over 10 times the annual sum that clubs have committed to the youth Elite Player Performance Plan – which aims to develop homegrown talent. This underinvestment may help explain why the Premier League is forced to import 67 per cent of players from abroad while the English team hasn’t won a World Cup in almost 50 years. Read more