Category Archives: Global Economy - 39 posts found

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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Global growth increasingly sensitive to EM and China

Many emerging markets were in recession last year and are only slowly emerging. Tight financial conditions and flat to inverted yield curves will make the recovery slow and fraught with risks. Global growth will be lower as a result.


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Don’t tar EMs with the same brush

The debate on EM economies (and equities) is heating up. Initially this week, we had the financial world equivalent of the pillory with the widely reported closing of a high profile US hedge fund’s EM fund due to heavy losses in 2013. Solemn nodding followed by EM naysayers suggesting that this is truly a sign of the death-knell of EM as an asset class. The stakes are being raised elsewhere too with the media pitting seasoned investment professionals on both sides of the fence in recent weeks.


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Don’t blame EMs (too much) for the recent sell-off

Emerging markets are being blamed on just about all hiccups and bad surprises currently befalling the global economy and financial markets. However, this is slightly unwarranted and, in any case, not consistent with the evidence. Out of the 9 equity markets up on the month, Indonesia, Hungary, Peru, the Philippines and the Czech Republic are among them.


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Forward Guidance: “Stronger and Longer”

Yesterday’s FOMC saw the first tapering of bond purchases by the Fed, by $10 billion per month. To soothe markets, the Fed also reinforced its forward guidance, making it “stronger and longer”, by a promise to leave the Federal Funds rate close to the zero bound “well past the time that the unemployment rate declines below 6.5%”.


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EM could benefit if the Fed disappoints the tapering consensus

One of the points we have emphasized to clients in the past two months is that many of our indicators suggest that long rates in the US may not rise as aggressively as the consensus expects. In other words, the Fed might stay more dovish than the market expects and tapering, should it occur, is already priced in.


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The case of the disappearing liquidity in corporate bond markets

One of the themes that we have been highlighting this year is the growing bubble in corporate bonds. It is pointless in the first instance to discuss whether super easy monetary policy that has fueled this bubble is appropriate or not. The main thing for investors to countenance is that the current monetary policy regime is having unintended consequences through the formation of a bubble in increasingly scarce liquid fixed income instruments.


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Slowing real money growth raises a red flag for growth and cyclical assets

Our real narrow money index continues to decline and is sending an increasingly bearish cyclical signal for the global economy and commodity prices. Our real narrow money index has now declined for 4 months running and is now tracking below 7% for the first time since October 2010.


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Central bankers and politicians getting complacent

The economy and financial markets remain in the grips of the most easiest monetary policy the world has ever seen. The balance sheets at the Fed and the BOJ continue to expand at record pace and global real rates have been negative for over 3 years now. Negative real rates create tremendous incentives for borrowers to lever up and often create asset bubbles in debt, equity and property.


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Portugal to Reignite Debt Crisis in 2014

The notion of a perfect storm is a tired cliché but in Portugal’s case, its use has rarely been more apt. Our view is that the market is underestimating the risks surrounding Portuguese debt roll-over and planned exit from the…


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