Category: Economy

Is the ECB doing QE?

Is the ECB doing QE?

Last week, the ECB announced that it would begin purchasing securities backed by bank lending to households and firms. Whereas markets and the media have generally greeted this announcement with enthusiasm, this column identifies reasons for caution. Other central banks’ quantitative easing programmes have involved purchasing fixed amounts of securities according to a published schedule. In contrast, the ECB’s new policy is demand-driven, and will only be effective if it breaks the vicious circle of recession and negative credit growth.

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What does a “good” Chinese adjustment look like?

What does a “good” Chinese adjustment look like?

I have always thought that the soft landing/hard landing debate wholly misses the point when it comes to China’s economic prospects. It confuses the kinds of market-based adjustments we are likely to see in the US or Europe with the much more controlled process we see in China. Instead of a hard landing or a soft landing, the Chinese economy faces two very different options, and these will be largely determined by the policies Beijing chooses over the next two years.

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Merkel goes to China to halt German economic slowdown

Merkel goes to China to halt German economic slowdown

By Sober Look The yield spread between US treasuries and German government bonds hit a new high last week (see chart). Was this divergence in rates simply a response to the ECB action last month (see post) in combination with stronger jobs data in the US or is there more to it? Part of the answer has been softer than […]

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My thoughts on the US economy

My thoughts on the US economy

The last revision for Q1 2014 released today at 8:30AM was the largest downward revision since second and third revisions began in 1976. Instead of contracting at an annualized 1.0% pace, the economy contracted at a 2.9% pace. That is a severe slowdown. While this is rear-view mirror stuff, I do have a few comments and two video clips. First, […]

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Some things to consider if Spain leaves the Euro

Some things to consider if Spain leaves the Euro

By Michael Pettis It might seem almost churlish to wonder what would happen if Spain were to leave the euro. The official European position is that the battle of the euro has been pretty much won, and anyone who argues otherwise will be accused of being a euro hater, an Anglo-Saxon or, even worse, a writer for theFinancial Times. But […]

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Why a savings glut does not increase savings

Why a savings glut does not increase savings

By Michael Pettis Debate about the global savings glut hypothesis is mired in confusion, a fundamental one of which is the seemingly obvious but false claim that a global savings glut must lead to higher global savings. Here, for example, is a recent piece by one of my favorite economists, Barry Eichengreen: There is only one problem: the data show […]

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Economic and market themes: 2014-04-25 US, Russia, Argentina

Economic and market themes: 2014-04-25 US, Russia, Argentina

Topics for today: Tail risk from Ukraine is increasing, giving rise to investment opportunity Argentina is still a basket case US housing will not add appreciably to a US growth acceleration I think the big news in the markets is still Ukraine. When I last wrote about the situation in Ukraine, I warned that, “It looks like we will get […]

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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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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.

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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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Three PMI Surprises, but France Takes the Show

Three PMI Surprises, but France Takes the Show

By Marc Chandler There have been three flash PMI reports today, and each was surprising. China and Germany surprised on the downside while the French surprise was on the upside. HSBC’s flash read on China’s manufacturing sector weakened for the fifth consecutive month. The flash March reading of 48.1 compares with the final February of 48.5. The forward looking new […]

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