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Don’t Fight the Last War: Lessons from the Battlefields of Risk Management

Niels Jensen — Tue, 08 May 2012 17:41:25 +0000

Our brains are not calibrated to deal with the unexpected. Most of us believe we are good risk managers but in reality we are not. Most of us trust that risk can always be quantified and expressed through some fancy modelling whereas, often, it cannot. The world is not normal, yet universities continue to teach our young students the wisdom of Markowitz and Sharpe which brought us modern portfolio theory and, more specifically, the capital asset pricing model. Garbage In, Garbage Out, as they say. One of the fundamental assumptions behind modern portfolio theory is that asset returns are normally distributed random variables. The return profile of US equities fairly closely matches that of a normal distribution with the exception of large negative returns. They have come about more frequently than one would or should expect

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[Premium] Daily commentary: On the Manufacturing PMI divergence

Edward Harrison — Wed, 02 May 2012 13:22:28 +0000

A slew of manufacturing data was released today in Asia and Europe to go along with the Manufacturing data we saw yesterday in the United States. The data show a divergence of economic fortunes that demonstrates the severity of Europe's austerity-induced economic recession. However, the strength of the US data has to be questioned as all of the regional indices came in below the prior month's data and forecasts except the Richmond Fed Index

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OPEC: near record production, spare capacity a concern

Sober Look — Thu, 26 Apr 2012 17:51:02 +0000

In addition to the hole left by the Iran sanctions, the Saudis are pressured to pump more in order to meet their own rising domestic demand. This is putting strains on OPEC's spare capacity

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Monetary Relief from Asia

Claus Vistesen — Tue, 21 Feb 2012 10:00:00 +0000

The ECB and BOE have shown their intent with their recent aggressive balance sheet expansions and the Fed is trying hard to keep the door open for more QE even as the data in the US continues to defy the general global slowdown. In Asia however sticky inflation in India, a desire to nail property developers to the wall in China and a belief in a post earthquake in Japan have kept the big Asian central banks from providing additional easing. Even in Australia where the economy has been teetering on the brink of a recession for 6 months, the central bank has refrained from any decisive moves

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Global Manufacturing Steadies as She Goes, or Does She?

Edward Hugh — Mon, 06 Feb 2012 21:00:02 +0000

The year got off on a much better foot than might have been expected, at least as far as global manufacturing is concerned. So the fall in global manufacturing has flattened out, even though the bounce back has more of a dead cat look about it than anything else. As usual in recent months the report was very much a mixed bag

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[Premium] Growth momentum shift to Emerging Markets continues

Edward Harrison — Mon, 06 Feb 2012 18:00:38 +0000

Two weeks ago I highlighted the fact that Indonesia has re-attained an investment grade rating, continuing the upward path it has been on since the Asian crisis derailed the Asian growth story 15 years ago. Indeed, we should expect emerging markets, and Asian emerging markets in particular to outperform developed economies

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The Swiss Franc is the most overvalued currency in the world, and the Indian Rupee most undervalued

Edward Harrison — Sun, 15 Jan 2012 20:30:14 +0000

That's what the Economist's Big Mac Index tell us. According to this index, the Swiss Franc and the Norwegian Krone are both more than 60 percent overvalued compared to the US dollar. Much further down are Sweden with over 40% overvaluation and Brazil which shows more than 30%. The flip side comes with the Indian Rupee, which had been hitting record lows last year. Here, we're talking about a 60% undervaluation

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Roubini: Moving From the Post-Bubble, Post-Bust Economy to Growth

Edward Harrison — Thu, 13 Oct 2011 15:08:21 +0000

Here are the important extracts from a recent paper in terms of the causes of the crisis. I have also embedded the full pdf version, which has suggested policy prescriptions as well

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EFSF Enhancement Hinges on Slovakia

BBH — Tue, 11 Oct 2011 11:30:02 +0000

Equity markets paring back recent gains after one-week recovery ahead of Slovakia EFSF vote. Slovakia is the last country to vote on EFSF enhancement; “Yes” vote is not a done deal. News reports indicate China’s SWF is buying bank shares; Indonesia unexpectedly cuts rate

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Faber: Market May Fall Below 1,100

Edward Harrison — Tue, 27 Sep 2011 10:00:54 +0000

Marc Faber told CNBC yesterday that he thinks the S&P500 could fall to as low as 1010 by the end of the ongoing sell-off. Faber also believes gold could fall. However, he believes both markets are oversold and is more keen to buy gold on a rebound than equities

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