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’Breaking the Bank (in gilts)
This’ll be a controversial argument about the Bank of England’s buying of UK government debt, we know… but it comes from Philip Rush of Nomura:
Aggressive quantitative easing brings [gilt] market capacity constraints into play.
Tesco’s Big Price Drop
The share edition that is…
And all because the UK grocer announced the following in its RNS trading statement on Thursday:
“In a challenging economic environment, we made good progress internationally but despite record sales,
German negative yields as harbinger of deflation
Mohammed El-Erian has penned a few thoughts about Germany’s negative yielding bubill auction and indentifies — quite rightly — that there are major risks associated with this precedent.
Ultimately,
Pawnbrokers of last resort: when a pound of flesh is not enough
In Shakespeare’s Merchant of Venice, an embittered money-lender, Shylock, famously forfeits interest on a loan he makes to merchant Antonio for a right to claim a pound of his flesh if the loan is defaulted upon.
Post-euro economies, charted
Crystal-ball charts via Mark Cliffe of ING (click to enlarge):
We lay emphasis on “crystal ball” given the long time-frame ING has employed, and the intense difficulty in quantifying the damage which complete break-up would cause to cross-border trade and so on.
On misunderstanding QE and UK inflation
Is QE money printing, or not? That is the question.
Is it hyperinfaltionary, or not? That is another question.
Ever since the strategy was rolled out by central banks in 2009, the vogue has certainly been to describe it as such.
Understanding your central banker
If you can tell a little about someone from the books they read, you can tell a lot about them from the books they write, especially if they’re a central banker.
Morgan Stanley economist Spyros Andreopoulos has dipped into the library at the “Global Central Bank” and draws comfort from the number of “depression economics”
SNB: There is no inflation risk!
You may have stumbled across this Bloomberg story on Wednesday:
Swiss 1970s Inflation Specter Seen in SNB’s Unlimited Sales
Swiss central bank President Philipp Hildebrand’s pledge to protect the economy with unlimited currency purchases may come at a higher cost than billions of francs:
On the difference between virtuous and vicious circles
There’s something to reading Ben Bernanke’s speeches from a passive communication point of view. It’s not so much what he says, but what he doesn’t say. Or rather what he infers by saying something else.
Through the looking glass with US Treasuries and gold
We’ve been harping on for a while now about how a scarcity of quality collateral in the market (read US Treasuries) has been wreaking havoc in the repo markets — and how QE-related large scale asset purchases have only added to the problem.
Jedi Kocherlakota on the ways of the FOMC force
As FT Alphaville noted before, the role of the FOMC is about more than just conducting monetary operations. It’s also about moulding investor opinion and expectation.
So, when traditional monetary tools of the Federal Reserve dry up,
The Fed’s oil easing
This post is going to address two fundamental points:
1) Why it might make sense for the Fed (or a respective government agent) to intervene in commodities.
2) Whether the Fed has indirectly already intervened and does this explain the mysterious WTI-Brent disconnect?
While we appreciate the above might be considered controversial,
Fantasy Fed options
While the world seems divided on whether Friday’s Jackson Hole meeting will result in the announcement of a fresh round of quantitative easing or not — we thought we’d run with the premise that QE in its conventional form is now redundant or impossible.
Treasuries, Lehman-fied [updated]
If there’s a chart to encapsulate Thursday’s market panic:
It’ll be the 10-year Treasury yield falling under 2 per cent. That’s breaching the lows seen in 2008 after Lehman Brothers collapsed. We’re checking when Treasuries were last this low,
The price of JGB-isation
Japanese history lesson by Citi rates strategist Mark Schofield — probably you can guess the subject:
It is tough to just look at the price action in Japan as the policy process was so long and drawn out.
When a government bond becomes a Giffen good
So, Swiss short-term market rates are now fully negative:
But it’s not just short-term rates. As of Thursday anyone holding two-year or three-year Swiss bonds is apparently demanding that the price exceeds the coupon-included return in order to be tempted to sell.
[Competition] A Swiss CPI basket
Consumer prices are on everybody’s mind in Switzerland.
World Radio Switzerland (the English-speaking Swiss network) kicked things of this morning with a debate about why on earth prices in Switzerland are refusing to budge lower,
Bank of England: “substantial downward risks”
Or to put it another way, the Bank’s fan charts are fanning out so much it’s ridiculous.
Here are two, via the Bank of England’s latest Inflation Report:
First on GDP (getting a bit negative there…):
A herd of tail risks [updated]
In which around 800 global investors polled by the Economist Intelligence Unit and BNY Mellon believe that deflation is as likely as a recovery in US housing — plus, other tail risk reflections in this chart here (click to enlarge):
Virtual money, from real central bank mistrust
What happens when you cross computer geeks with populist outrage at central banks?
Bitcoins happen.
New Scientist reports in its latest edition that a new virtual currency is harnessing peer-to-peer networking and high-tech computer-run algorithims to rival central-bank issued money.
Planet Hendry
That chart (click to enlarge) and more in Hugh Hendry’s April letter to investors, H/T Tail Chaser. There’s a very interesting assault on Asian commodity giant Olam too, for Glencore watchers…
‘Real’ US Treasury yields go back to zero
The effects of stubborn inflation and persistently low bond yields charted for the benchmark 10-year US Treasury, by Reuters’ financial graphics-guru Scotty Barber:
There’s an even longer chart — plus an explanation — over here.
The deflation risk is still out there, SocGen says
This is what happens when markets are built on sand (silicon QE, anyone?).
They can crumble all too quickly.
A reminder of market fragility, from Societe Generale’s cross-asset research team:
Presumably you need the Baltic Dry line in the first chart — an indicator of ‘real’ economic recovery — to match up with commodities prices,
Language games, with Albert
Another missive on the US recovery from the SocGen bear-king Albert Edwards and, uh-oh, paging Ludwig Wittgenstein:
Words fail me
What’s up Albert?
Dylan’s latest weekly extolled the virtues of holding cash when expected returns on equities look as poor as they do now…
For you Southern Europe, ze inflation is over
Cezmi Dispinar points to the below slide from a presentation by Heiner Flassbeck over at NachDenkSeiten. It’s all in German, and it’s about eurozone monetary policy, but stick with it!
The chart shows unit labour costs — with the red line being Germany,
The deleveraging pain in Spain
Here’s a problem for Spain (and to a lesser extent, the US and UK) charted:
It comes from Morgan Stanley’s 125-page European banking presentation, wherein the analysts reinforce their vision for the (reshaped) future of the industry.
The ‘depreciation doomsday machine’
There are prognostications of doom for the US economy, and there are highly specific prognostications of doom for the US economy.
Here is one, from Charles Dumas of Lombard Street Research:
The potentially
James Bullard on QE2 and the ‘global output gap’
James Bullard delivered an interesting, chart-rich speech on inflation, QE2 and global output gaps on Thursday. (And yes, ‘interesting’ is all subjective.)
The now non-voting St Louis Fed President was a strong advocate of QE2 as a way to reverse alleged deflationary pressures.