Biography
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Hi!

I first got into economics and finance while working in the woods of Westport, CT for Bridgewater Associates in 2008-2010.

One of the many things I learned there was that I find it more satisfying to explain the markets than actually work in them. So I ended up leaving to help out with research for an upcoming biography of Alan Greenspan, which involved, among other things, reading every single Fed meeting transcript from the middle of 1987 through 2006.

After that, I was fortunate enough to get a Marjorie Deane Financial Journalism Internship at The Economist. My writing has also appeared in Bloomberg View and the New York Times.

While studying diplomatic history at Yale might not seem like the best way to prepare for this career path, there are some surprising similarities between the ways governments determine their foreign policy and the ways central banks go about setting interest rates. (Lots of arbitrariness, personality conflicts, people making things up as they go…)

Originally from Chicago, I’m currently an economic migrant in New York. Which is good for satisfying my cravings for Korean food and live classical music, less so my need to hike up mountains.

Gold is back to where it was in March, 2013 (in GBP, anyway)

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What markets think Brexit means for the Bank of England

If you’d asked any observer four or five years ago which country would be the first to leave the European Union, few would have guessed it would be the UK. Of all the countries in the EU, the UK is probably the one with the least to gain from meaningful changes in its economic relationships with its neighbours. Yet here we are.

London’s stock markets, priced in sterling, probably understate the expected impact on the UK economy given the sectoral and geographic earnings mix of the listed companies. So we looked at the short-term interest rate markets to get a sense of how traders think the Bank of England will react to the vote. Read more

Why is the Netherlands doing so badly?

It’s been eight lean years for residents of the euro area:

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Markets keep fighting the Fed, will the Fed keep letting them win?

A quick reminder that we’ll be hosting a special edition of Macro Live today at 1:50pm to cover the release of the FOMC statement and subsequent presser.

Back in December 2015, Federal Reserve policymakers expected they would raise the policy interest rate band to 1.25-1.5 per cent by the end of 2016, implying a cumulative increase in short-term rates of 1 percentage point, or four separate decisions to raise rates by 25 basis points. At the time, the prices of overnight index swaps implied an 11 per cent chance this would happen, according to Bloomberg’s WIRP function. Read more

What if Greece got massive debt relief but no one admitted it? (Part 2.5)

The replacement of market funding with increasingly concessional loans from the “official sector” may have reduced the Greek government’s balance sheet debt by as much as €200bn, yet the headline numbers haven’t captured any of this alleged gain.

In our previous post we looked at whether this was reasonable, focusing on several sets of accounting guidelines to see how they might apply to Greek sovereign obligations: International Financial Reporting Standards (IFRS), International Public Sector Accounting Standards (IPSAS), the European System of Accounts (ESA 2010), and Eurostat’s Manual on Government Deficit and Debt (MGDD). Read more

What if Greece got massive debt relief but no one admitted it? (Part 2)

We’ve raised the possibility Greece’s sovereign debt burden is far lower than the headline figures — and the potential significance of this — in previous posts. Now it’s time to dig in.

(The idea was brought to our attention by Paul Kazarian, whose Japonica Partners has a position in Greek government bonds and would stand to profit from a compression in risk premiums. His interest in the outcome doesn’t necessarily mean he’s wrong.) Read more

What if Greece got massive debt relief but no one admitted it? (Part 1.5)

After years of failed attempts to stabilise the Greek economy, the Greek government finally got debt relief in 2012. As we explained in our previous post, interest payments fell by more than half between 2011 and 2013. Since the 2012 modifications, Greece’s sovereign debt service costs have been significantly smaller as a share of total output than in Italy or Portugal.

Yet it hasn’t helped much. The economy continues to contract and Greece’s depression since 2008 is among the absolute worst of any country in the world since 1980. Investment spending had already plunged by 60 per cent in real terms between the peak in 2007 and the end of 2011. Since then, it’s dropped another 13 per cent. Overall, Greece has had no economic growth since the beginning of 2013:

Part of the reason: the debt modifications failed to convince private investors to return to Greece, despite having “solved” the problem of government debt service costs. Read more

The IMF and the Greek government’s financial assets, part 2

Last week, we revealed a significant discrepancy between the Greek government’s net debt as reported by the International Monetary Fund’s World Economic Outlook database and what you’d get if you replicated the IMF’s standard methodology for netting out “financial assets corresponding to debt instruments” using data published by the Bank of Greece.

Neither the IMF nor the Bank of Greece had responded to our requests for an explanation of the discrepancy at the time we wrote our original post, nor did either institution respond in time for our follow-up discussion of the Greek government’s equity portfolio. Four days after we’d emailed our original question (while we were on holiday) we finally got some responses. Read more

Our look at the latest Fed survey of US household “well-being”

For the past three years, the Federal Reserve has surveyed thousands of Americans about their finances, their hopes, and their fears. We wrote about the first version of the survey when it was released in August, 2014. The third iteration came out this week. Unsurprisingly, the answers to the repeated questions haven’t changed much. But there are some new questions compared to two years ago, which means a few new interesting things to learn about the American economy.

Some highlights: Read more

The Greek government’s equity portfolio

According to data published by the Bank of Greece, which follows common standards set by the European Central Bank and Eurostat, the general government sector of the Greek economy owned financial assets worth about €86bn at the end of 2015.

Of that, about €18bn consisted of claims by various levels of government on each other, specifically about €3bn in T-bills, €7bn in Greek government bonds, and €8bn in short-term loans from local government to the central government. Net out those claims and the general government sector of the Greek economy held financial assets of about €68bn at the end of 2015. Read more

Is the IMF under-counting the Greek government’s financial assets?

According to the International Monetary Fund, the Greek government’s financial assets were worth around €3bn in 2015, or less than 2 per cent of GDP. That’s what you get if you take the difference between general government gross debt and net debt, as reported in the latest version of the World Economic Outlook Database.

Yet according to our independent analysis of data from the Bank of Greece — and using the IMF’s preferred definitions of what should and shouldn’t be counted — the Greek government’s financial assets appear to be worth around €30bn in 2015, or about 16 per cent of GDP. Read more

BHS has only itself to blame for its pension troubles

Here’s an odd argument the Bank of England is somehow to blame for BHS’s massive pension hole. This is the key bit:

The investment environment fundamentally changed post-2008. To keep the UK economy liquid in the crisis, between August 2008 and March 2009, the Bank of England cut the base interest rate from 5% to a record low of 0.5%, where it has stayed ever since…The problem arises in the difference between the amount of money set aside to cover eventual pensions and the obligations. The entire DB scheme is a bet that today’s investments will always come good, forever, and cover tomorrow’s guaranteed payments.

Schemes had been banking on annual returns from their investments of at least 5%. Suddenly, with low interest rates, and stocks going through the post-crisis trough, it’s down to 0.5% as a base. That means they have to put up a lot more new money to get the returns they need.

Contrary to what’s implied in the piece, it’s quite simple to manage a defined-benefit pension properly — especially if most of the beneficiaries are already retired. The level of interest rates only matters if you’re doing it wrong. Read more

Venezuela’s reserve liquidation in one chart

Venezuela is in dire straits. Once one of the richest countries in the western hemisphere, the average wage is now estimated to be less than half what it is in Cuba using market exchange rates.

There are many ways to measure how much money is currently fleeing the clutches of Bolivarian socialism, either to repay debts contracted when the oil price was far higher, or simply to shield the wealth of apparatchiks worried by the prospect of state collapse. (Miami condo developers send their regards.) Read more

What if Greece got massive debt relief but no one admitted it? (Part 1)

Time is a flat circle, which is why the Greek government is set to run out of money before debt payments are due to the European Central Bank in July — just like last year, and despite last summer’s supposed deal between the Greek government and its various “official sector” creditors.

As before, the immediate cause of this latest crisis is the persistence of disagreements about the size of the budget surpluses (excluding interest) the Greek government is expected to generate, the specific “reforms” the government needs to implement, and the need for debt relief. The fundamental cause, however, is that the Greek government can’t raise money from the private sector at reasonable rates.

Why? Read more

How short-selling can (theoretically) improve your portfolio

The trick with investing is owning things that go up and not owning things that go down. Unfortunately, it’s really hard to know which is which in advance. For most people, the best choice is to buy lots of different things and hope the stuff that goes up makes more money than the stuff that goes down loses — a strategy that, over time, tends to work pretty well.

But if you could somehow avoid buying the worst assets before it’s obvious to everyone else how bad they are, you could do even better. This, in a nutshell, is the appeal of the short-seller. Read more

If Larry Summers is right about secular stagnation, he’s also right about Harvard’s endowment

Sticking with a plan after it seems to have stopped working can be admirable persistence — or it can be bull-headed stubbornness. The question is whether recent difficulties are just temporary setbacks bound to reverse or, instead, you’re on the wrong side of a fundamental change in the way the world works.

Consider the steady decline in real yields since the early 1980s. Back then, long-term US Treasury bonds paid more than 15 per cent each year and American stocks traded at less than 7 times earnings, cyclically-adjusted. Nowadays 30-year Treasury bonds yield less than 3 per cent and, on a cyclically-adjusted basis, US equities are priced at roughly 25 times earnings. These changes delivered huge capital gains for investors. Read more

Podcast: Jim Chanos on the art of short-selling

Alphachatterbox is available on Acast, iTunes, and Stitcher. Read more

Digging into Canada’s trade balance

We recently had a chance to chat with a senior Canadian economic policymaker. Among other topics — he estimated fiscal stimulus would boost growth by around half a percentage point in 2016 and by a full percentage point in 2017 — we discussed his belief the depreciation of Canada’s currency could help export growth offset some of the weakness in the oil economy. What follows is an attempt to assess Canada’s progress so far.

For context, the Canadian dollar has lost about 21.5 per cent of its value against the currencies of its trading partners since the most recent peak in mid-2011, although the loonie had dropped as much as 31 per cent before the recent rally in risky assets:

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What might Trump’s remittances plan do to the trade balance?

Donald Trump — one of the few remaining American presidential candidates who failed to attend Camp Alphaville last summer — has repeatedly promised he will build a wall along the southern border, with construction costs to be covered by the Mexican government. Since last August, Trump has asserted he can extract this concession by threatening to close America’s trade deficit with Mexico and by threatening to confiscate southbound remittances.

Despite being one of Trump’s signature policies for more than six months, the release of a memo fleshing out a few additional details has led to a flurry of additional coverage, much of it concerned with the possible humanitarian consequences.

We don’t want to focus on whether the idea is actually sound, but on what the proposal can teach us about the balance of payments. It’s possible Trump’s plan, if enacted, could actually cause America’s trade deficit to widen. Read more

The case for more capital

Back when the Basel III regulations were being debated in the wake of the crisis, it was common to hear dire warnings that rules limiting how much banks can borrow would constrict lending and lower real output. Even some who ostensibly support higher equity capital requirements think there are “trade-offs” between a safer financial system and economic growth.

New research from Leonardo Gambacorta and Hyun Song Shin of the Bank for International Settlements suggests this thinking is backwards: “both the macro objective of unlocking bank lending and the supervisory objective of sound banks are better served when bank equity is high.” Read more

Private equity’s mark-to-make-believe problem

Finance is the wrong business for people committed to the idea of objective truth.

No asset is inherently worth anything, just some multiple of the income you think it will produce over time. Both the earnings forecast and the multiple can change at a moment’s notice — sometimes because the outlook for the future has genuinely changed, but often for other reasons. Read more

A weird argument against a faster inflation target in Sweden

Ask most central bankers why a little inflation is a good thing, and they’ll give you some combination of these three reasons:

  1. Rising prices encourage businesses and consumers to spend more now in the hope of saving money in the future
  2. It’s easier for companies to cut real wages by giving people raises below inflation than it is to cut their pay
  3. Finally, and most importantly, it helps central banks push real interest rates low enough to get economies out of recessions

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Ranking America’s industries by profitability and tax rate

It doesn’t get nearly as many pixels as the gross domestic product figures or the trade balance, but America’s statisticians also capture detailed industry-level data on sales, labour costs, taxes, profits, and other input costs. We’ve started exploring these tables and thought we’d share some of what we’ve found so far.

First, here’s a chart showing earnings before interest, tax, depreciation, and amortisation as a share of total revenues by industry sector, as well as corporate tax paid as a share of Ebitda:

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What does it mean to be “economically literate” anyway?

A well-rounded education should give some understanding of economics and finance. So, in principle, it’s a good thing there are organisations such as America’s Council for Economic Education, a non-profit backed primarily by large financial and industrial companies aiming to train teachers and provide resources for children to understand basic concepts.

But a little knowledge is a dangerous thing, and our recent experience with the CEE’s quiz on “economic literacy” — thanks to the Federal Reserve Bank of Richmond for tweeting the link — suggests this education effort could be doing more harm than good.

On the bright side, it’s still possible to learn something useful from the quiz by closely studying why some of its questions are so bad. Read more

The Fed’s gradual embrace of “secular stagnation”

The biggest news from Wednesday’s Federal Reserve meeting was the sharp decline in the path of future interest rates forecast by policymakers over the next few years.

Less noteworthy for its immediate impact, but still significant, was the modest change in the forecast for the level of the Federal funds rate in the “longer run”. Previously, the median policymaker expected short-term interest rates to hover around 3.5 per cent once the economy had returned to normal. Now she thinks the “longer run” level is closer to 3.25 per cent. Read more

Is America’s tightening cycle almost over?

A quick reminder that we’ll be hosting a special edition of Macro Live today at 1:55pm to cover the release of the FOMC statement and subsequent presser.

There’s only a 3.4 per cent chance the Federal Reserve will raise rates today, according to Bloomberg’s WIRP function and the prices of overnight index swaps.

As recently as the end of December 2015, market prices implied odds of at least one rate hike by tomorrow at more than 40 per cent:

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Dirt, rocks, and sunshine: the story of Australia’s external balance

Australia has handled the commodity bust surprisingly well — so far, anyway. We’ve already looked at how a strong job market and a housing boom have helped offset some of the pain from cuts in mining capex.

Now we’re going to focus more on changes in the external balance, which has helped push the growth rate in total output significantly above domestic demand:  Read more

How much longer can Australia be the “lucky country”?

Australia hasn’t had a recession in 25 years.

About 18 months ago, we wondered whether China’s slowdown might break this remarkable streak. The latest figures, released Wednesday, suggest not. Real output continues to grow around 3 per cent each year — significantly faster than the rest of the rich world. So far, anyway, Oz seems to be adjusting smoothly to a world of markedly lower Chinese demand for Australian dirt and rocks. Read more

The “financial adviser” scammers

While many in the financial advice industry admirably try to help regular folks figure out how much to save and how to allocate their assets, a stubbornly large group is in the business of systematically ripping people off.

At first, this might seems strange. Financial advice is a competitive industry and FINRA — the government-sanctioned regulatory organisation — makes it easy to search the records of individual advisers and firms. So, in theory, fraudsters shouldn’t have much staying power.

But according to an important new paper from Mark Egan, Gregor Matvos, and Amit Seru, these parasites survive simply because a subset of firms prey on customers, mainly the elderly and less-educated, who don’t know to check their brokers for a history of past misconduct. Read more

China’s got problems, but it won’t run out of reserves

For years the Chinese government accumulated claims on the rest of the world, with foreign reserves soaring almost continuously to a peak level of just under $4 trillion in 2014. Then things went into reverse:

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