August, 2010
A telling speech
This speech by Minneapolis Fed president Narayana Kocherlakota had a couple of insights into the Fed’s thinking that are worth noting.
Here’s an excerpt from the speech discussing the FOMC’s recent decision to re-invest the money from repaid MBS into treasuries:
And the junk bond rally sailed on
Why did junk bond issuance reach new heights last week? And why has it nearly reached an annual record high this year?
While yield-hungry investors are probably looking for anything they can get, it seems a few things have happened this year for the stars to have aligned so neatly for junk.
Take that, Niall — Krugman was right all along
By Jove, Krugman was right!
Even if that assessment springs from lips of Paul Krugman himself, we have to say the evidence increasingly seems to confirm it.
Krugman’s point was always that inflationistas,
Clutching at the Chinese
It’s bullishness, but not as we know it.
Here’s the Nomura take on investing in a world beset by a slowing US recovery:
Since the beginning of the year we have been making a distinction between growth prospects and market risk aversion.
Politics by default
Take pity on Republican Congressman Mario Diaz-Balart.
The man in charge of Florida’s 25th congressional district has just been singled out by Deutsche Bank as the US Congressional representative with the hardest-hit constituency in terms of mortgage arrears.
Missing the Housing Bubble 101
Here’s an, erm, brave discussion paper out from the Boston Fed.
In it, authors Kristopher S. Gerardi, Christopher L. Foote, and Paul S. Willen examine “optimism” and “pessimism” about the US housing market before the recent crash.
Just what is Hungary up to?
Adventures in debt management, Hungarian change-the-rules edition.
The Hungarian economic ministry made this odd little statement on Tuesday (translated from the Hungarian via Google, so be warned):
Dear George, again [updated]
July inflation data for the UK is in, and surprise, surprise: CPI is above 3 per cent — again — and Bank of England Governor Mervyn King has to write a letter to the Chancellor, George Osborne. Again.
‘General collateral remains puzzlingly inverted to fed funds’
Here’s another one for filing under the ‘quality collateral/unsecured lending anathema’.
Or, for that matter — the ‘unsecured lending is dead’ category.
Barclays Capital’s Joseph Abate has noticed that US general collateral is currently trading above the effective fed funds rate.
The world is enough for US Treasuries (maybe)
Is there enough money in the world to finance US debt?
It’s not an FT Alphaville rhetorical, but a question asked by economist Allan Meltzer last year. We bring it up because it’s also the basis of a new working paper out from the La Follette School of Public Affairs.
When Irish spreads are widening
The spread between 10-year Irish bonds and German bunds hit a three-month high on Monday — just ahead of Tuesday’s 10:30am (London time) auction of up to €1.5bn worth of Ireland debt :
Further reading
Elsewhere on Tuesday,
- Goldman’s gift to taxpayers.
- Hollywood techniques for prettying up bad quarterly earnings.
- Three ways to approach behavioral finance.
- Killer trade deficits.
- Fed watch:
Pink picks
Comment, analysis and other offerings from Tuesday’s FT,
Arvind Subramanian: India’s weak state will not overhaul China
As India enters its 64th year since independence, its economic dynamism presents a paradox,
Snap news
Breaking pre-market news on Tuesday,
- Resolution reveals first-half profit of £203m — statement.
- Gartmore posts first-half EBITDA of £38.8m; AUM down 10 per cent on year — statement.
- Carlsberg H1 operating profit tops forecasts – statement.
It’s not the length of the equations, but what you do with them
Rick Bookstaber has a fascinating post about “physics envy”, which is how he describes the affliction suffered by those who would explain activity in financial markets according to sophisticated mathematical models (and base decisions on them).
Will the real PE performance numbers please stand up?
This is getting tiresome.
On Friday we learned the results of another study looking into whether private equity outperforms the public markets, and to what extent. From the FT:
A sample of 701 mature buy-out funds generated average annual returns of 7.6 per cent,
The unsecured vs covered bond anathema
Continuing FT Alphaville’s recent collateralised lending focus, we draw attention to the following trend observed in the covered bond market by Barclays Capital.
In their latest Euro Weekly note, the analyst team notes:
Euribor has been vaporised
Not our words, but those of Richard Comotto of the European Repo Council.
In case readers are not familiar with Mr Comotto, he’s the author of the ICMA’s semi-annual survey of the European repo market — probably the best (if not the only) overview of the repurchase market in Europe.
‘Can’t the Fed just buy stocks?’
Confused about the Fed’s latest round of pseudo-quantitative easing?
Fear not.
Bank of America Merrill Lynch’s Michael S. Hanson and Ethan S. Harris are on hand to answer all your lingering questions.
Of Vedanta and Vikings, Part II
The deal’s done and Cairn Energy’s choice is made, then. Greenland, rather than India. Via a deal with Vedanta the size of which was largely unexpected when an offer was first rumoured last week.
Any room for second thoughts then?
Not really,
To: Ben Bernanke Re: Everyone thinks Lehman is &!@%#!
Economics of Contempt is once again digging up bits of the Valukas Report.
Much more — in particular the Fed’s back-up plans for the busted bank –at EofC.
Ultra-long yields meet the Big Pffft
This is a bond rally, punk. Go long — go ultra-long — or go home:
Although we’re not quite sure why.
For a start, the euro 30-yr swap caved even further into post-Lehman lows on Monday:
And speaking of ultra-long rates — we’d also note the curious difference in the inflation expectations apparently revealed in this chart of Tips (white line) and index-linked gilt (red line):
Germany and the 90% threshhold
The recent sort-of-controversial study by Reinhart and Rogoff, which found that economic growth slows considerably when public debt exceeds 90 per cent of GDP, could soon get an interesting European test case.
The negative M&A externalities of Mr Thiam
Aviva confirmed on Monday that it hadn’t given so much as the time of day to the recent £5bn offer from RSA for its general insurance business — for reasons that were probably strategically prudential.
Ireland shakes, rattles and rolls
Last week was not the best for Ireland.
The ‘I’ in, err, SGIP, saw the first major blip in its sovereign spreads since the European banking stress tests, as Bank of Ireland reported a(nother) loss,
Saying ‘mine’s bigger than yours’ in Chinese
So, you’ve heard it before, but this time, it’s official – at least, by most key measures. China has now overtaken Japan as the world’s second-largest economy, just seven months after becoming the world’s third-largest economy in January.
Adventures in ECB funding – At least Austria’s doin’ all right
Spanish banks’ reliance on funding from the European Central Bank surged to a record in July.
The country’s banks combined use of ECB facilities like the MRO and LTRO rose by €3.5bn to €140bn last month.