As markets consider the consequences of the Federal Reserve ending its bond purchases and the possible beginning of quantitative easing in the Eurozone, recent news reports have focused investor attention on another dimension of central bank activity: their purchases of equities. Though opaque financial reporting makes detailed accounts of central bank equity holdings difficult to…
To herd investors into junk bonds and equities was no trouble at all—ZIRP and QE and a little rhetorical encouragement did the trick. To manage a comprehensive exit from those overvalued positions will prove a tougher undertaking. —James Grant, Grant’s Interest Rate Observer, August 8, 2014 For another example, please see our June 2, 2014,…
This question has been asked since 2009, and despite the unwavering unanimity of economists and market watchers that sovereign bond yields are once again set to rise—the latest Wall Street Journal survey, for example, shows 100% of economists expect the US ten-year yield to rise by the end of 2014 (average forecast: 3.04%), June 2015…
Given that credit creation is the raison d’être of modern central bankers, the fact that European bank lending remains anemic despite a plethora of new measures from the European Central Bank (ECB) seems to us substantial cause for concern. The ECB’s pronouncements and alphabet soup of new programs have been remarkably effective at bringing down…
Ominously familiar warning signs beg the question of whether a replay of 2007 is at hand; the answer is complicated Recent market activity has seemingly combined some of the excesses of 1999 with those of 2007. On a more general level, investors have grown more bullish and volatility across asset classes has collapsed. In contrast…
The trickle of banks leaving the commodity space has become a veritable flood. Over the past six months some of the biggest global banks have announced plans to either dramatically scale back operations or exit the physical trading business entirely, leaving the space increasingly in the hands of specialized merchant banks—e.g., Mercuria and Tudor Pickering—and…
Why do investors have real assets in their portfolios? The usual answer is to hedge against inflation. However, given recent muted inflation levels globally and the poor performance of common inflation hedges, many investors are increasingly questioning why they hold any real assets at all. In the end, we believe real assets deserve a place…
Michael Lewis’ new book Flash Boys has sparked a fierce debate on the practice known as high-frequency trading (HFT), with Lewis and his supporters claiming markets are “rigged” by high-frequency traders who front-run other market participants and engage in a number of other unsavory activities. Unfortunately the truth is more mundane. HFT—the name given to…
Since bottoming on February 5, the MSCI Emerging Markets Index has returned more than 10%, dragging year-to-date returns into the black. Yields on EM debt, meanwhile, have fallen sharply, and many EM currencies have posted strong gains. At the same time, Chinese growth appears to be slowing and debt problems mounting, while the “Fragile 5”…
Gregory (Scotland Yard detective): “Is there any other point to which you would wish to draw my attention?” Holmes: “To the curious incident of the dog in the night-time.” Gregory: “The dog did nothing in the night-time.” Holmes: “That was the curious incident.” —Sir Arthur Conan Doyle, “Silver Blaze” Since 2008, US money supply (M2)…