• Could the US economy accelerate higher in 2014

    I have been saying for some time now that I believe peak growth in this US business cycle was Q3 2013. Nevertheless, I want to explore the possibility that growth will accelerate from here, something that could keep stock prices and other risk asset prices elevated. A few quick thoughts below First, today’s jobless claims number at 304,000 supports the […]

    Could the US economy accelerate higher in 2014
  • Secular versus cyclical factors in equity markets

    Continuing where I left off yesterday, it’s clear that the global economy is growing now. We see growth in the US, Europe, Japan, and in emerging markets. Economic growth is the norm, not the exception. And over the longer term, markets will rise to reflect that growth. That’s what I mean when I say market and economic momentum is up and to the right. Here’s the problem; there are periods of time when economies and markets fall out of bed. And sometimes the upheaval is so great, it turns into a generational divide – a depression and/or secular bear market. I believe there is a good case that we are still both in a depression and a secular bear market and I want to explain how that matters below.

    Secular versus cyclical factors in equity markets
  • Dealing with confirmation bias in macro analysis at market turning points

    My macro view for most of the global economy is upbeat. My only downbeat views concern deceleration of growth in emerging markets and froth in capital markets. But in the main, market and economic momentum is up and to the right. The natural path is progress. Or at least it has been for the last couple hundred years. In that vein, I see the US in a middling upturn, Europe in an improving recovery and China in a softish landing due to loss socialization. But if you read my daily analysis, it is full of worry and in-depth coverage of downside risks. For some of you, it can be confusing. You’re saying to yourself, “I thought you were upbeat about this.”

    Dealing with confirmation bias in macro analysis at market turning points
  • Risk for Greece and European periphery from Ukraine crisis escalation mounts

    The big news in the markets today is the standoff in eastern Ukraine between pro-Russian armed rebels and the Ukrainian military. This has European markets selling off. The potential for problems in eastern Ukraine is something we should have seen as a possibility given the motives in the Texas annexation I outlined as a comparative case. Given that analysis, I still believe the question now is more about how Ukraine responds in eastern Ukraine than how Russia, Europe, NATO, or the US respond. It looks like we will get a military response. And as such, the potential for dramatically increasing tension with Russia is high. The European periphery will be especially vulnerable because of this. In addition, Russia is already moving away from the West as a hedge. Thoughts below

    Risk for Greece and European periphery from Ukraine crisis escalation mounts
  • Economic and market themes: 2014-04-11 – Greece

    This week’s theme post will be exclusively about Greece because I think the Greek bond deal is emblematic of trends we see in markets and the real economy. And of course, the big news in the past few days is Greece. Its 5-year government bond deal was over six times oversubscribed, even after a 50% increase in the allotment. The […]

    Economic and market themes: 2014-04-11 – Greece
  • Edward Harrison’s Ten Surprises for 2014, Update 1

    It is about time I updated you on how the ten surprises for 2014 are faring. I actually have 14 but I only get credit on the first ten. The second ten are a bonus round. I am defining my surprises as events to which investors assign 1-in-3 odds of happening but which I believe have a more than 50 […]

    Edward Harrison’s Ten Surprises for 2014, Update 1
  • Some thoughts on Ukraine, part 2

    Yesterday I looked at the Ukraine situation from a decision-tree framing. And my conclusion was that Western influence in Ukraine’s internal politics to aid regime change was a key factor in making the situation in Ukraine and its consequences more unpredictable. I believe markets are fairly complacent given the potential fallout, which could include military confrontation. Today, I want to use a different framing to look at Russian – US animosity over Ukraine. I am going to use the Franco-Prussian War as an analogy to give a sense of likely outcomes.

    Some thoughts on Ukraine, part 2
  • The lower bound of central bank effectiveness

    Through the lens of someone looking at economies with rapidly ageing populations we can simply say that this problem arises because there isn’t any consumption to pull forward! Fisher’s interest theory was always valid, it is merely that in the context of a rapidly ageing population the consumption smoothing mechanism breaks for obvious and quite logical reasons. Quite simply, even in ZIRP you are not stealing a sufficient amount of “future” growth to kick-start the recovery because such future growth is not there.

    The lower bound of central bank effectiveness
  • Some thoughts on Ukraine, part 1

    It is about time I did a long-form political economy piece because a lot of what is occurring in emerging markets is of that ilk. The political economy dominates the economics of the issues in a way that makes discussing markets and economics very much related to politics. Here I want to concentrate on Ukraine because I believe it has become an important point of conflict for the future geopolitical landscape.

    Some thoughts on Ukraine, part 1
  • Ten lessons from Charles Keating on corporatism and control fraud

    I knew Charles Keating, the head of Lincoln Savings, in my capacity as a financial regulator and as the subject of his wrath. His fraud schemes and the manner in which they targeted our system’s vulnerabilities in an era before Citizens United made the corruption of politicians by fraudulent CEOs child’s play remain the play book for the world’s most destructive financial frauds. Our failure to learn the ten lessons has caused immense suffering. Keating’s life, and the great harm he caused, will not have been in vain if we step back and use the occasion of his death to reflect on the changes we need to make.

    Ten lessons from Charles Keating on corporatism and control fraud

Members »

Secular versus cyclical factors in equity markets

Secular versus cyclical factors in equity markets

16 April 2014 at 09:07

Continuing where I left off yesterday, it’s clear that the global economy is growing now. We see growth in the US, Europe, Japan, and in emerging markets. Economic growth...

Commentary »

Could the US economy accelerate higher in 2014

Could the US economy accelerate higher in 2014

17 April 2014 at 09:56

I have been saying for some time now that I believe peak growth in this US business cycle was Q3 2013. Nevertheless, I want to explore the possibility that growth will accelerate...

Daily »

News: 2014-04-18

News: 2014-04-18

18 April 2014 at 09:03

Britons Struggle to Save for Home Down Payments as Prices Surge – Bloomberg For Canadian manufacturers, confidence is building on back of U.S. recovery Smart Woman:...

  • News: 2014-04-17
    News: 2014-04-17

    For Obama, Standoff With Moscow Jumbles Plans at Home and Abroad – WSJ.com ECB hardliner Weidmann comes in...

    17 April 2014 at 09:24
  • News: 2014-04-16
    News: 2014-04-16

    Automattic raising more than $100 million – Fortune Tech Euro zone inflation stuck in ‘danger zone’,...

    16 April 2014 at 06:58
  • News: 2014-04-15
    News: 2014-04-15

    Ukraine crackdown on pro-Moscow separatists gets off to slow start | Reuters BBC News – UK house prices still...

    15 April 2014 at 07:33
  • News: 2014-04-14
    News: 2014-04-14

    This could be the moment for Greece to default – FT.com Ukraine President threatens military operation as...

    14 April 2014 at 07:42

All Content

Four key reasons for capex accelerating

Four key reasons for capex accelerating

Sober Look’s received a number of e-mails regarding the recent post on the possibility that rising CAPEX spending in the US is driving corporations to tap their credit facilities, thus increasing loan growth. Most were highly critical of this line of thinking in their comments, using words such as “bogus”, “propaganda”, “head fake”, “delusional”, etc. But let’s just look at 4 key data points.

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ECB Action: Just a Question of Time?

The Managing Director of the IMF and the chief economist are making no bones about it. More action by the ECB is inevitable. It is “just a question of timing,” says Lagarde and “sooner was better than later”, chimed Blanchard, the chief economist. The market is less sanguine.

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On Europe’s move toward QE to prevent deflation

There is a battle within the European Central Bank. Some want to take stronger action. Others do not think it is necessary. It is not just a matter of counting up who is on what side of the issue. It is not simply about majority rules. The ECB seeks consensus. As is well appreciated, there are important political and legal obstacles to buying European sovereign bonds.

Read more ›
The lower bound of central bank effectiveness

The lower bound of central bank effectiveness

Through the lens of someone looking at economies with rapidly ageing populations we can simply say that this problem arises because there isn’t any consumption to pull forward! Fisher’s interest theory was always valid, it is merely that in the context of a rapidly ageing population the consumption smoothing mechanism breaks for obvious and quite logical reasons. Quite simply, even in ZIRP you are not stealing a sufficient amount of “future” growth to kick-start the recovery because such future growth is not there.

Read more ›
Ten lessons from Charles Keating on corporatism and control fraud

Ten lessons from Charles Keating on corporatism and control fraud

I knew Charles Keating, the head of Lincoln Savings, in my capacity as a financial regulator and as the subject of his wrath. His fraud schemes and the manner in which they targeted our system’s vulnerabilities in an era before Citizens United made the corruption of politicians by fraudulent CEOs child’s play remain the play book for the world’s most destructive financial frauds. Our failure to learn the ten lessons has caused immense suffering. Keating’s life, and the great harm he caused, will not have been in vain if we step back and use the occasion of his death to reflect on the changes we need to make.

Read more ›
On the persistence of inadequate ideas like the money multiplier

On the persistence of inadequate ideas like the money multiplier

I have been saying for years now that the money multiplier does not adequately explain how money is created in a modern fiat money economy. In particular, the idea that banks are passive intermediaries who simply respond to injections of central bank money by creating more loans is fundamentally wrong. Banks actively determine the amount of “inside money” circulating in the economy. When they create loans or buy securities, inside money increases. When loans are repaid or written off, or securities are sold, inside money reduces. The constraints on bank lending are multiple and complex, and don’t include reserve availability (though the price of reserves is a constraint). The Bank of England’s description of the process is broadly accurate.

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Can the Jobs Data Give the Dollar Another Leg Up?

Can the Jobs Data Give the Dollar Another Leg Up?

The US dollar is consolidating yesterday’s gains that were scored largely in response to Draghi’s revelation that QE and a negative deposit rate were discussed at the ECB meeting. The consensus expects that the US economy grew 200k jobs last month and that the unemployment rate ticked down to 6.6% from 6.7%. In addition, the ISM for the service sector saw a strong recovery, providing new information we did not have at the start of the week. The bottom-line here is that US economic growth picked up in late Q1.

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The US jobs market is healing

The US jobs market is healing

We are seeing signs of significant improvements in US labor markets. The ADP report today was certainly an indication of recovery from the winter slowdown. One area to watch in the ADP report is construction, as construction payrolls have consistently increased each month over the past year. With demand for rental units remaining high, this sector could pick up quickly.

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Jumbos still cheaper than conforming mortgages

Jumbos still cheaper than conforming mortgages

For years mortgage rates on “jumbo” loans have been higher than for traditional (conforming) mortgages. Since jumbo loans were larger than the upper limit permitted to be packaged and sold to Fannie and Freddie, banks would typically charge a premium for “illiquidity” on these products. But starting last year conforming mortgages became more expensive for borrowers than jumbo loans.

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Calm before the Storm?

Calm before the Storm?

The US dollar is narrowly mixed, largely within its well-worn trading ranges against the major currencies with two exceptions. There have been several marginal developments over the 24 hours that are shaping the investment climate.

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Eurozone credit contraction continues

Eurozone credit contraction continues

Private loan balances in the euro area continue to decline. Last month’s drop of 2.2% from the previous year was worse than had been expected by economists.

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Emerging Market Equity Allocation Model for Q2 2014

Emerging Market Equity Allocation Model for Q2 2014

We view Q1 2014 as a potential turning point for EM this year, just as the May 22 Bernanke speech on tapering was last year. In recent weeks, EM has digested the start of Fed tapering, devaluations in Argentina and Kazakhstan, the Crimean crisis, a deeper than expected China slowdown coupled with a shift in its FX regime, and now potentially earlier than anticipated Fed rate hikes.

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