The market vogue is to obsess about how the Fed is suppressing long-term rates.
But for years now, FT Alphaville has been trying to explain why, in reality, Fed intervention is as much focused on propping up short-term rates (preventing them from falling through zero) as it is about keeping longer-term rate expectations anchored. Read more
It’s not just the Chinese who are warning about the risks associated with Bitcoin. On Thursday, Business Insider reported that the former president of the Dutch Central Bank Nout Wellink warned that the hype around Bitcoin was worse than Tulip mania in the 17th century.
From BI: Read more
Some are betting that Beijing will eventually endorse Bitcoin. This week Lightspeed Venture Partners of San Francisco and a China-based sister fund announced a $5m investment in BTCChina…
– Financial Times, November 22
The People’s Bank of China even did a Q&A on Thursday to explain why it’s more or less forbidden the Chinese financial system from dabbling in Bitcoin… Read more
Courtesy of the Bundesbank (h/t Dario Perkins):
In a nutshell, the paper concludes that current account adjustment is significantly hampered in countries that are members of a monetary union. This holds particularly in comparison with floating exchange rate regimes owing to the lower level of exchange rate flexibility. Furthermore, the persistence of current account balances in member countries of a monetary union is also more pronounced than in fixed-rate regimes due to less flexible interest rates as a result of the single monetary policy.
Live markets commentary from FT.com
Beijing has banned banks from Bitcoin transactions || Australia’s Qantas Airways on Thursday forecast steep first-half losses while announcing a further 1,000 job cuts and possible asset sales || German drugs and chemicals group Merck acquires Apple supplier AZ Electronic Materials || Siemens announced a plan for higher profits at its infrastructure unit at an analyst day on Thursday || BNP will buy Bank Gospodarki Zywnosciowej from Dutch lender Rabobank to boost its presence in Poland || A suicide bomber has attacked Yemen’s defense ministry || Markets update Read more
A friend of FT Alphaville who works in the real world, far from finance, asked us what we think about putting money with peer-to-peer lenders.
We advised him to buy gold-bitcoins instead, but it made us want to take a look. It turns out we’re not alone. The chancellor is expected on Thursday to launch a consultation on blessing peer-to-peer lending with inclusion in the UK’s popular ISA scheme for tax free savings accounts.*
But where we think we might be alone, for now, is worrying about something that has afflicted lenders from time immemorial: run risk. Read more
Elsewhere on Thursday,
- When the 2-and-20 crowd drives economic research.
- Fantasy economics.
- “I’m the largest victim,” said Mr. Shah, once India’s “exchange king”. Read more
Markets: Equity markets are weaker across the Asia-Pacific region. Investors are cautious ahead of interest rate decisions in the eurozone and the UK on Thursday plus a highly-anticipated monthly US jobs report on Friday. The broad losses follow a 0.1 per cent pullback in the S&P 500, after a strong private payrolls survey increased speculation that the Federal Reserve could soon trim back, or “taper”, its stimulus measures known as quantitative easing. (Financial Times) Read more
FURTHER FURTHER READING
- How to fix Econ 101. Read more
We first proposed the idea that QE could be (but wasn’t necessarily) deflationary a couple of years ago. It was dubbed a counter-intuitive idea by Tyler Cowen.
More recently, a similar proposition has been made by Stephen Williamson — though this time using models and proper math. His view is a little different to ours because it’s less focused on the safe asset squeeze and more on the conditions that generate a preference for cash over yielding paper in the first place. Hint: you have to think the purchasing power of cash will go up regardless. Read more
You can’t turn a virtual corner this week without tripping over a discussion about the US minimum wage.
The case in favour of raising it has been made by Arindrajit Dube, Paul Krugman, Ed Luce, and Kevin Drum. Arguing against have been Tyler Cowen, Scott Winship, and Adam Ozimek. Read more
This guest post is from Larry Brainard, Chief Economist and Co-Founder of Trusted Sources, an independent advisory firm specialising in emerging market macroeconomic and policy research.
The continuing debate about the timing of Fed tapering has overshadowed two developing issues that have important implications for EMs in 2014. The first is the reappearance of deflation in the Eurozone and the other is the suggestion by former Treasury Secretary Larry Summers that the US economy is slipping into secular stagnation. Read more
An interesting thing happened on the way to Sheep Marketplace — the online market for illicit goods which rose to prominence after Silk Road, the dominant site for illicit goods trading, was apprehended by the Feds in October.
The interesting thing is not that after a couple of months in the limelight the site closed down because a hacker allegedly made off with $5m worth of Bitcoins. Nor is it that the Bitcoin community failed to buy the story because they noticed that all withdrawals from the site were being blocked by the site’s operators — promptly branding the entire website a scam from the beginning.
What is interesting are the “capital controls” the community is now effectively enforcing on the Bitcoin wallet address they suspect is responsible for the theft. In fact, an entire community of Bitcoin vigilantes has sprung up on the Reddit website, dedicating themselves to chasing the money across the open peer-based Bitcoin ledger. Read more
One-year total return of the Athens stock index, to the end of October 2013: +50%
One-year return of the Bloomberg Greece Sovereign Bond Index, same period: +134%
One-year net return of Dromeus Capital’s Greek Advantage Fund: +107%
Yep — FT Alphaville hears that the first-year performance of Dromeus Capital’s Greece-focused fund would make it one of 2013′s best-performing, having already made a strong start at the beginning of the year.
It’s another indicator of how much both Greek equities, and the sovereign’s restructured debt, have recovered this year… Read more
However late you might decide to come clean, it pays to be first to ‘fess up.
Antitrust: Commission fines banks € 1.71 billion for participating in cartels in the interest rate derivatives industry Read more
Live markets commentary from FT.com
Farewell to Australia’s debt ceiling || Bank of Ireland begins €540m fundraising || Bank of Japan policy board member plays down need for additional easing measures || EU to hit group of banks with heavy fines in Euribor antitrust case || Tesco hit by falling sales everywhere || Standard Chartered issues a profit warning || Tax dispute could see Nokia leave India behind in Microsoft sale || Strong growth for British Service sector Read more
Remember the days when securitised products were toxic, complicated and for the recklessly brave only? Another year of rising asset values later and the only members of the “10 per cent club” left are slices of equity on new issue collateralised loan obligations.
Morgan Stanley’s credit strategists have had their binoculars out and, which ever way you cut it, there simply aren’t big returns on offer in 2014. Except for high quality debt exposed to interest rate risk, the price of pretty much everything has gone up this year as yields have fallen.
Compare and contrast the Novembers of 2012 and 2013: Read more
From “noted” to gone in less than 2 months…
From Nomura’s Martin Whetton:
With just over a week before Australia was expected to hit its borrowing limit, the government reached a deal with the Green party in the Senate to abolish the Commonwealth debt ceiling, which is expected to pass Parliament sometime this week.
Elsewhere on Wednesday,
- Bullard on the gap between policy makers and academics.
- Count Anton-Wolfgang von Faber-Castell and his place in Germany’s trade surplus.
- DeLong gets lengthy on techno-stagnation. Read more
Markets: Asian markets were mixed, with Japanese stocks dropping from a six-year high, while China stocks outperformed. Overall, most bourses weakened as investors stayed on the sidelines ahead of important data due out later this week, including Friday’s US jobs report from November. (Financial Times) Read more
FURTHER FURTHER READING
-Planet Money makes a t-shirt. Read more
Two recent notes emphasise that the impressive recent ISM manufacturing readings in the US are probably as much about expectations of future performance as about what has already happened.
Aichi Amemiya of Nomura notes that historical divergences between the ISM and the “hard data” have coincided with climbs in the equity market, suggesting that improved sentiment about the future is the common variable in both. Amemiya shows this by constructing a competing “hard-data based ISM manufacturing index” of five components that roughly mirror the five comprising the ISM. Read more
What’s been lighting a fire under Forest Laboratories?
Citi’s Hans Lorenzen is inciting a rebellion against central bank repression. Now more than ever, he suggests, is the time to fight the Fed.
First, he notes, realised volatility in credit is down almost 90 per cent from its peak two years ago, and spreads are now at 50-year lows. He blames this on central banks, which are “suppressing risk across markets”. Read more
Live markets commentary from FT.com
RBS apologises for Cyber Monday technology breakdown || Fed clears Goldman and JPM capital plans || Rio Tinto pledges to cut capex by $6bn in two years || Pearson buys Brazilian language school chain Grupo Multi || Dow Chemical plans to shed at least $5 billion worth of low-margin businesses || Apple buys Topsy to track Twitter || Ukraine government faces no-confidence vote || Petrobas shares fall on subsidy announcement || Inflation takes root in Japan || Gold price tumbles to lowest since July || Markets Read more
For those lucky enough not to recognise the FX shorthand… that’s a weak pun involving the overvalued and pegged Ukrainian hryvnia.
It’s alluding to the idea that Ukrainian households might, as protests over the rejection of an EU free trade deal last month continue, decide to start converting their deposits into FX. They have form.
That would put a whole load of pressure on already skimpy FX reserves — which at about $20bn are down to covering about two and a half months of imports, below the fairly arbitrary three months that makes the IMF all sweaty. Read more