A Primer on the Euro Breakup

euro

Many economists expect catastrophic consequences if any country exits the euro. However, during the past century sixty-nine countries have exited currency areas with little downward economic volatility. The mechanics of currency breakups are complicated but feasible, and historical examples provide a road map for exit.

The real problem in Europe is that EU peripheral countries face severe, unsustainable imbalances in real effective exchange rates and external debt levels that are higher than most previous emerging market crises. Orderly defaults and debt rescheduling coupled with devaluations are inevitable and even desirable. Exiting from the euro and devaluation would …


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A False Sense of Security in the UK

The UK’s economy is increasingly beginning to resemble how it looked prior to the financial crisis – this is not healthy and leaves the UK vulnerable to a repeat of the last crisis. In this presentation, we discuss that UK…


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Credit in UK Booming Again; Wage Growth Has Lagged

There are continuing signs the UK’s economy is increasingly resembling itself prior to the financial crisis.  House-price growth has cooled of late, but is still growing at 4.6% YoY, down from almost 12% last summer.  Consumer credit is also growing…


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Tactical Buy on NZD

(from our Tactical from 2nd of June) We only have one tactical signal this week, a buy on NZD.  The VP Divergence Signal looks at correlations to detect when an asset is trading out of sync with other related global macro…


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Manufacturing and Services PMIs Diverge

There has been a sharp divergence between ISM services and non-services in the US. Many of our leading indicators for manufacturing have pointed to weakness. This suggests demand is tilting away from manufacturing and towards the service sector.  The breakdown…


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US Growth Coming in As Expected

(The following is from our December Leading Indicator Watch (LIW), released December 4th, 2014.  The LIW is a monthly report giving a summary of all or our main leading indicators, allowing clients to forecast early on where the business cycle in major…


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US Home Prices to Continue to Rise

(from our Leading Indicator Watch from March 5th, 2015) Our leading indicator for US house prices is supportive of an improvement in price growth. One of the inputs that drives our leading index is the number of months’ supply of…


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ECB QE: Inflation to Start Surprising to the Upside

The sharp devaluation in the euro and the rapid acceleration in economic activity will mean short-term inflation dynamics in the eurozone will soon start surprising to the upside.  In this context it is important to remember that the only justification…


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Turkey’s External Debt Remains Worryingly High

Excerpt from VP Tactical first published on 14th April 2014: We have been flagging Turkey as our top candidate for a currency crisis since we released our Understanding Debt and Currency Crisis thematic in 3Q14.  Although the lira has collapsed…


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US Manufacturing – More Weakness to Come

US manufacturing has slowed in recent months, and we expect more to come.  We had noted the discrepancy between the PMI and ISM surveys earlier this year as it looked like the ISM was outputting data inconsistent with our leading…


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