Category Archives: Featured - 68 posts found

A Primer on the Euro Breakup

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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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Top Ten Posts of 2014

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As we head in to 2015, here are the top ten posts from 2014. We wish our readers a Happy New Year! Top 10 Posts of 2014: Profit Margins To Head Lower, Equities To Suffer (May 22nd) Deflation Not A…


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Japanese Equity Flows Diverge

October saw the BoJ’s announcement of increased stimulus, coordinated with the new targets for the GPIF, 25% each for foreign and domestic equities (up from 12% each), and a decrease in JGBs, from 60% to 35% of holdings.  Investors, both…


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Deflation not a danger, modest inflation with wage growth ahead

While markets are fixated on the threat of deflation and “lowflation” (a dumb word if ever there was one), our leading indicators are pointing towards modest core inflation ahead. Furthermore, our leading headline inflation indicator is rising moderately as well. We don’t have hyperinflation,…


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Beware of small caps in the US; underperformance ahead

One of the points we have been emphasizing to clients in recent months is that US small caps are looking increasingly less attractive compared to large caps. Small caps have benefited from excess liquidity and a belief that as the US economy recovers, smaller companies, with their greater domestic focus, are the place to be. Yet price and valuations are making it more and more difficult to justify the trade.


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Excess liquidity and money growth point to weaker second half of 2014

One of the themes we have been tracking in the past 6 months is the slowdown in global money growth and excess liquidity. The focus on the second derivative is important here. The level of growth in liquidity and money growth indicators is decent but the annual growth rate is rolling over.


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European equities to disappoint as earnings fall short of expectations

One of the equity themes we have been highlighting in the recent month is ongoing mismatch between high expectations in Europe relative to lacklustre growth in profitability and growth. European equities are overvalued based on what our models are telling us about earnings and revenue growth this year.


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Corn breaks higher; more upside ahead

About a month ago, we flagged a buy signal on spot corn for clients. Corn has rallied about 10% since then and more upside is ahead. Corn prices have been a strong downtrend since mid-2012 declining to the same levels seen in 2009-2010 before the rally in 2011. Looking at the technical picture this may now be about to change.


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Cyclical upside intact in the UK, structural challenges remain

We have seen strong coincident activity in the UK in recent months, helped in part by a government-engineered boost to the housing market, which has lifted consumer spirits and caused retail sales to surge. Our leading indicator anticipated this upturn in the economy, and it continues to see no blots on the horizon (ie over the next 6 to 9 months), although this month it has leveled off slightly rather than continuing to climb.


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