Category Archives: Global Economy - 42 posts found

US Unemployment Rate is Not its Former Self

Structural factors are ensuring that the unemployment rate in the US today is not what it was in periods past.  Yellen has seemed to be more in the camp that the decline in the labour participation rate (PR) since the…


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Despite the rout, excess liquidity will prove to be supportive

  Stock markets are experiencing a classic crash pattern.  Volatility has spiked and sharp sell offs are often being followed by powerful rallies.  As with previous crash patterns, we would expect markets to continue to gyrate wildly for around the next…


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Yield Curves Flattening Everywhere: Global Growth to Slow

As we remind our readers often, yield curves are one of the single best leading indicators.  A yield curve inversion has predicted every US recession since 1945, with only one false positive, in 1966 (although the false positive preceded a…


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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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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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