El-Erian: The Graccident, as captured by the FT’s front page

The writer is chief economic adviser to Allianz and chair of US President Barack Obama’s Global Development Council
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Sensing that this could be “history in the making” for Greece and for Europe, I decided a few weeks ago to keep physical copies of the FT (yes, I still get a physical copy!). While the inside of the paper contained rich reporting and comprehensive analysis, the headlines on the front page ended up providing a great feel for what transpired in this horrific tragedy. Read more

On those creditor ‘red lines’ for Greece

In this guest post, former IMF staffer Peter Doyle argues that in pushing for pensions, VAT and labour reforms, creditors are only stoking the latent explosiveness of Greece…

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Troika-Greek negotiations are reportedly down to the wire over early-retirement pensions, VAT, and labor reforms: the IMF says all are non-negotiable; Tsipras, perhaps inadvertently echoing Mrs. Thatcher, has, so far, responded “No! No! No!”

These three issues converge on those at the upper end of their working lives, the 50-74 year old cohort, and are reflected in its participation and unemployment behavior. So it is worth considering data on those and the associated implications for the negotiations. Doing so suggests that these creditor red lines lack foundation. Read more

Guest post: The Greek standoff is no Prisoner’s dilemma

This guest contribution, from Giles Wilkes, sprung from a fierce internal debate amongst the FT’s leader writing team on Wednesday…

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The standoff between the Greeks and their European creditors has often been compared to a Prisoner’s dilemma. This foundational scenario for game theory – famously, the expert discipline of Yanis Varoufakis, the Greek finance minister – concerns two prisoners accused of a crime who are handled separately by the police. Each are given the choice either of ratting on their accomplice, or staying silent. Should just one of the prisoners choose to rat on the other, he will walk free with a reward while his mate languishes in jail. If both hold firm, they each walk free unrewarded, while if they each betray their friend, then both are thrown into jail. Read more

Guest post: Do IMF-set primary surplus targets for the EZ periphery pass the smell test?

Spoiler alert. In this guest post, former IMF staffer Peter Doyle, argues that some participants in the on-going Greek crisis might be suffering from anosmia…

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Just another case of the heebie-GGBies?

In this guest post, Gabriel Sterne, head of global macro research, Oxford Economics, looks at previous large drawdowns in Greek bond prices for clues about the future.

Greek Prime Minister George Papandreou “asked our partners to contribute decisively in order to give Greece a safe harbour” five years ago this week.

Since then, Greek government bond (GGB) prices have plunged by 37 per cent — or more! — four separate times, with one amazing long rally in between: Read more

Guest post: The Euro and the IMF Now

Here’s former IMF staffer Peter Doyle , with some bold advice from the wings of the IMF Spring meetings…

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Guest post: IMF Spring hubbub

Thousands of officials, journalists, academics and market professionals will soon be in Washington DC for the spring meetings of the International Monetary Fund and World Bank, from April 17 to 19. Former IMF staffer Peter Doyle advises attendees on what to really ask the IMF.

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Another spring, another IMF Spring Meeting, another set of IMF platitudes—a two-, three- (or is it four?)-speed, variably geometric, or airline metaphoric world economy, making progress, more to do, notably for the poor, sundry complacencies and risks to beware. Even Occupy has been put to sleep by these rituals.

But much goes on behind this veil of blur. Here are five steps to get to what matters. Read more

IMF abdication on Greece

This guest post is from Peter Doyle, an economist and former IMF staffer

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In an otherwise sound critique of Mr. Varoufakis’ list of proposals for Greek government policies last week, Mme. Lagarde’s letter to Mr. Dijsselbloem contains an additional, unremarked, but revealing element. After saying that, in the IMF’s view, the Greek list was sufficiently comprehensive to be a valid starting point for a successful conclusion of the review, she added:

… but a determination in this regard should of course rest primarily on an assessment by Member States themselves and by the relevant European institutions.

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The unwitting euro enforcer…

Peter Doyle, an economist and former IMF staffer, argues that for Greece continued emergency lending assistance is a necessity.

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Sovereign debt reprofiling: Ukraine’s lesson for the IMF

This week’s $40bn IMF programme announced for Ukraine will include some restructuring of its debt. Gabriel Sterne, head of global macro research at Oxford Economics, points out that it comes at an interesting time for the fund’s policy on restructuring.

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The IMF’s proposals to change its policy on sovereign debt reprofiling have divided opinion, with FT Alphaville providing a debating platform between supporters (for example here and here) and sceptics including myself (for example here and here).

The proposals are motivated by the objective of providing a fund programme breathing space to work when it is unclear if debt is unsustainable. Read more

Michael Pettis and perverse monetary policy

A guest post by Simon Cox, Asia-Pacific Investment Strategist, BNY Mellon Investment Management

China’s weak inflation numbers, updated on February 10, underscore why the People’s Bank of China (PBOC) is now easing policy wholesale, after a long sequence of targeted tweaks. (It cut reserve requirements on February 5 less than three months after cutting benchmark interest rates in November.) But does monetary easing work in China the way it works elsewhere? Does it, indeed, work at all? Read more

Are we numb to silly valuations again?

This guest post is from Shane Leonard, CFA, CEO and co-founder of Stockflare, a financial data company. Previously he worked as a stockbroker at Citigroup and Credit Suisse.

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Eichengreen: Cassandras and currency wars

A guest post from Barry Eichengreen, a professor of economics and political science at the University of California, Berkeley and author, most recently, of Hall of Mirrors: The Great Depression, the Great Recession, and the Uses — and Misuses — of History.

Economic analysis, it seems, is the art of recycling old ideas under new names. So it is with the debate over currency wars, which parallels exactly the 1930s debate over competitive currency devaluation. David Woo, meet Ragnar Nurkse.

Nurkse, in his 1944 classic, International Currency Experience, argued that reflationary policies following the collapse of the 1920s-era gold standard operated by depreciating the exchange rate. Countries that pushed down their exchange rates had the greatest success at preventing further falls in prices and output, insofar as they substituted external demand, in the form of additional net exports, for deficient demand at home.

But the policy was beggar thy neighbour. Read more

Bank of Canada rate cut necessary as pre-emptive strike

In this guest post, Alex Bellefleur, global macro strategist at Pavilion Global Markets, writes that the Bank of Canada was prudent to loosen monetary policy in response to the decline in oil prices.

Last week the Bank of Canada (BOC) surprised markets by cutting interest rates 25 basis points, leaving them at 0.75%. While some argue this move was unnecessary, we are of the view that the cut is needed as a pre-emptive manoeuvre to counter private sector deleveraging. Read more

The Bank of Canada’s Rate Cutting Folly

The Canadian central bank surprised markets this week by cutting its base rate by 25 basis points. Jon Hartley, co-founder of Real Time Macroeconomics, argues that the Canadian central bank’s decision to cut interest rates will exacerbate the Canadian housing bubble and wasn’t needed to offset the fall in the oil price.

Early this week, the Bank of Canada unexpectedly announced a change in its key benchmark interest rate for the first time in four years. However, rather than raising its benchmark interest rate as Fed has said it intends to do later this year, Canada’s central bank has lowered its overnight interest rate by 25 basis points to 0.75%. Read more

US shale revolution must force Davos energy rethink

This guest post is from the co-authors of UBS’s white paper for the WEF meeting 2015 in Davos, which started on Wednesday.

Note that one of the co-authors, UBS Investment Bank’s chief economist Larry Hatheway, will be fielding questions on the energy chapter on Friday at 11:30am during Markets Live. Read more

Davos must face up to life after ZIRP

This guest post is from the co-authors of UBS’s white paper for the WEF meeting in Davos, which started on Wednesday.

Note that one of the co-authors, UBS Global Asset Management’s head of asset allocation & currency Andreas Koester, will be fielding questions on the financial policy chapter on Thursday at 11am during Markets Live. Read more

Guest post: Was the Swiss National Bank nuts?

Debate still rages about the merits of last week’s Swiss National Bank move. Peter Doyle, economist and former IMF staffer, argues that the SNB in fact kept its exchange-rate cap for too long — and was wrong to have targeted the euro alone.

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Twin sources of tech-related instability

This guest post is from the co-authors of UBS’s white paper for the WEF meeting in Davos, which gets underway today.

Note that one of the co-authors, UBS Wealth Management’s global chief investment officer Mark Haefele, will be fielding questions on the technology chapter during Wednesday’s Markets Live session at 11am. Read more

Guest post: The euro question

Despite many recent reforms, standstill in euro area output and prices–alongside renewed debates on Grexit–have put fundamental questions about the euro back on the map. Perhaps, argues Peter Doyle, economist and former IMF staffer, that is because the key question about the euro has yet to be posed.

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How cheaper oil changes the calculus for Keystone XL

By James Benton

With oil hovering around $57/barrel (for WTI) as of late Monday afternoon, now might be a good time for a quick look at the state of Canada’s enormous and expensive tar sands projects, and at the Keystone XL pipeline intended to help move what they produce. Read more

O’Sullivan: US wage income is accelerating

FT Alphaville presents a guest post by Jim O’Sullivan, chief US economist at High Frequency Economics.

The last US employment report featured the usual pattern recently: another decline in the unemployment rate and another month without any acceleration in wages. The bond market rallied. After all, inflation is unlikely to pick up and the Fed is unlikely to start the tightening process if wages are stagnant. If wages are stagnant, there must still be lots of slack. Read more

Guest post: The case for sovereign reprofiling the IMF way, part two

‘Reprofiling’ is a controversial word in the world of sovereign debt at the moment. The IMF is gathering responses on a proposal to extend bond maturities when a country’s debt looks like it might be unsustainable going into a programme.

In this post, having reviewed criticisms of the proposal, Lee Buchheit, Mitu Gulati and Ignacio Tirado discuss how reprofiling can be designed to avoid hostility from creditors. Read more

Guest post: The case for sovereign reprofiling the IMF way, part one

‘Reprofiling’ is a controversial word in the world of sovereign debt at the moment. The IMF is gathering responses on a proposal to extend bond maturities when a country’s debt looks like it might be unsustainable going into a programme.

In this post, Lee Buchheit, Mitu Gulati and Ignacio Tirado review criticisms of the proposal — and suggest some responses. Read more

Guest post: The Riksbank at zero — lessons for others

Sweden’s Riksbank cut its key interest rate to zero last week because inflation was too low. The Riksbank has been noted – and criticised – for raising rates in 2011 to tackle a credit and housing bubble. Peter Doyle, an economist and former mission chief for Sweden for the IMF, argues that the recent experience of the world’s oldest central bank has more to teach policymakers.

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One view of the Swedish Riksbank’s cutting its repo rate to zero is that this is a defeat for the use of monetary instruments to lean against financial fragilities. That conclusion is premature. It misses three more important implications for other monetary policymakers. Read more

Guest post: IMF policies in the next crisis – unsuitable with a high probability

It’s that time of year again for the IMF-World Bank annual meetings in Washington – which means time for reflection on the fund’s attitude to changes in sovereign debt restructuring. Gabriel Sterne, Head of Global Macro Investor Relations at Oxford Economics, argues why it might be time for less procrastination, and more ‘forward guidance’…

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Guest post: Time to call in the UK War Loan

This is a guest post Toby Nangle, head of multi asset allocation and co-head of global asset allocation at Threadneedle Investments, a UK-based fund manager.

The UK Government could reduce its debt and save the taxpayer £300m by exercising its right to call the ‘War Loan’ and refinance it with new perpetuals with the same coupon but a thirty-year non-call period or new long-dated bonds.

The War Loan is one of the oldest bonds in the market issued by HM Treasury back in 1932. Read more

Brazilian elections: the good, the bad, and the ugly

The first round of Brazil’s presidential elections takes place on Sunday. This guest post is from Jorge Mariscal, emerging markets chief investment officer at UBS Wealth Management…

From a market perspective, Latin American economies can be divided into the good, the bad, and the ugly. Reforming economies like Mexico are good. Crisis-ridden Argentina and Venezuela are ugly. In the middle lies Brazil – slow to reform, but not entirely hostile to investors. Economically, Brazil’s elections are a crossroads: the winner must decide either to join Mexico on the path to reform and long-term prosperity, or remain attached to an approach that threatens eventual bankruptcy. Fortunately for the markets, the electorate seems to be pushing the candidates towards the former approach. Read more

Scotland and Sterling — whose currency is it anyway?

This guest post is from Charles Proctor, a partner at lawyers Fladgate and an acknowledged expert on the legal aspects of money…

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Who “owns” sterling?

With the date of Scotland’s independence referendum fast approaching, the debate over a currency for an independent Scotland has reached fever pitch. Read more

Argentina and Elliott – was it really a bond play?

Pablo Triana, Professor at the ESADE Business School and all round derivatives expert, thinks that the role of CDS deserves consideration in the fight between Argentina and a hedge fund. In this post he explores possible motives for litigation. Elliott Management declined to comment.

Hedge fund NML Capital, a subsidiary of Elliott Management Corporation, has won crucial legal victories in its long search for rightful compensation from the Republic of Argentina. Courts in the United States sided with NML in finding a “creative” way to finally gain some leverage over the South American nation, which had long refused to make good on defaulted debt owned by the fund (along with other so-called vulture investors).

Argentina was found to have discriminated de jure against NML et al, breaching the now famous “pari passu” clause that entitled those creditors to equal rank with similar creditors. As per the remedy ordered by the judge, Argentina can´t pay a dime to those who accepted new bonds in the 2005 and 2010 debt restructurings unless it also pays NML et al in a ratable fashion. Read more