With thanks to the eagle eyed Tracy Alloway, the year in asset class returns illustrated in shades of Deutsche Bank blue.
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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
Fresh from having made $1bn impeccably timing the putative US recovery in the first half of this year (and Japan, natch), Andrew Law of Caxton Associates – one of the world’s most successful macro traders – has now turned bearish, and in quite a big way.
We have been expecting the US economy to reach escape velocity led by housing and corporate capital expenditure… but for whatever reason that just hasn’t happened…tapering is off the table for the foreseeable future.
Caxton is long across the US yield curve (the debt debacle has been a good buying opportunity, if nothing else). Mr Law has spoken extensively with us about his view on the global economy and the state of the hedge fund industry. Tree-based publishing issues mean those thoughts came in truncated form. Below are some extended excerpts from him. Read more
A while ago we speculated that because of the ongoing bifurcation of the eurozone market, Eonia rates could rise, and liquidity once again concentrate in core economies, as banks pay back their LTRO funds.
Even if it appeared that the system could handle the repayments, banks in core economies would still be inclined to take advantage of extremely cheap negative rates available in collateral markets, so as to earn a spread on the deposit facility in a way that arguably encumbered the remaining liquidity. That would make it less available to periphery institutions.
Meanwhile, without the additional layer of ECB liquidity in the system — which acts as a type of system-wide insurance mechanism — periphery banks would consequently be forced to make ever more competitive bids for Eonia funds, lifting rates across the board. Read more
Barclays asks clients what they think every few months and the latest batch of answers from 799
dart throwing interns global investors show that they are ready, set and already yawning over the prospects for tapering by the Fed this week.
In the UK, however, who knows? Consensus came there none. Read more
The working theme at FT Alphaville towers is that we’re in somewhat of a damned if we do taper/suspend QE, and damned if we keep going with it.
What’s more, we now know that even the whiff of tapering — which is anything but an unwind, as we’ve noted here – can cause undue chaos in risk assets. In which case, perhaps tapering isn’t as much of an option as many believe it to be.
After all, QE reflects the sovereign put. It’s the government subsidy which takes volatility away. If you stop dishing it out, there’s every chance bad things may happen.