Author: Marshall Auerback

Marshall Auerback

Marshall Auerback, has 29 years experience in the investment management business, serving as a global portfolio strategist for Madison Street Partners, LLC, a Denver based hedge fund. He also has also worked as an economic consultant to PIMCO, the world’s largest bond fund management group. He is a Fellow at the Economists for Peace and Security, a Research Associate at the Levy Institute, and a non-executive director of Pinetree Capital in Toronto, Ontario, Canada.

Here are my most recent posts

Courting disaster in Spain

Courting disaster in Spain

By Marshall Auerback The real weak link now in the Eurozone is Spain, where the data is a disaster. It is Greece writ large. And this is before Madrid, under Prime Minister Mariano Rajoy, has submitted to a new ECB program of agreed austerity in exchange for the ECB backstopping the nation’s bonds via a renewed Securities Market Program (SMP). One […]

Has ‘Super Mario’ really saved the euro?

Has ‘Super Mario’ really saved the euro?

By Marshall Auerback Germany’s Constitutional Court gave a green light on Wednesday for the country to ratify Europe’s new bailout fund, boosting hopes that the single currency bloc is finally putting in place the tools to resolve its three-year old debt crisis. In an eagerly anticipated ruling that has had investors on tenterhooks for months, the court in the southern city […]

The euro zone can still blow up even after unlimited purchases

The euro zone can still blow up even after unlimited purchases

By Marshall Auerback There appears to be an emerging consensus that the euro will survive, especially now that Mario Draghi has apparently grasped the nettle and persuaded his colleagues that the ECB is prepared to initiate unlimited purchases of national government bonds in order to underwrite their solvency.  Of course, as usual with the ECB, there’s a sting in the tail, […]

The eurozone’s architects have created a doomsday machine and a gift for speculative capital

The eurozone’s architects have created a doomsday machine and a gift for speculative capital

The eurozone’s architects failed to follow through with the logic of a political union. Nobody cares about “trade imbalances” in the Canadian confederation. And nobody would care if Alberta, for example, were to run perpetual trade surpluses with the other 9 provinces. Fiscal transfers from the strong to the weak are part of the Canadian bargain in a full national union. Had Europe adopted a similar federal structure, the Greek and Spanish issues would be moot. As it stands, however, the architects of the euro have created a doomsday machine and a gift for speculative capital.

Spain is the New Greece

Spain is the New Greece

Spain has become the new Greece. Actually, in many respects Spain is now worse than Greece. The Spanish unemployment rate is already so high and unlike Athens, Madrid has made no headway in reducing its public debt levels (whereas the Greeks are close to running a primary fiscal surplus at which point they could leave and turn the problem back on to Brussels). Moreover, Spain has a huge private debt burden that is twice that of Greece.

The Elephant in the Room Is Spain, Not Italy

The Elephant in the Room Is Spain, Not Italy

The decision for Europe’s bosses is this: they must ultimately confront the consequences of their policy choices. They can destroy the eurozone by continuing with the same failed mix of policies or by salvaging it by adding what has been missing from the outset: a mechanism for shifting surpluses to the deficit regions in the form of productive investments (as opposed to handouts or loans).

Jobs data highlight huge potential for capital loss in Treasuries

Jobs data highlight huge potential for capital loss in Treasuries

I have been making a big deal about strength in the household series of employment and the trend in IUCs. These are statistical series that do not get revised out of recognition. They often tell the tale at turning points. Given that past household survey employment and IUC trends have persisted, the current bond market rally will be even more insane and the stock market will probably continue to work higher, even though the favorable seasonable window has closed. I expect the recent trend of large outflows from stocks to bonds over the last year (and last five years) to be reversed in 2012. Not only are interest rates at generational lows but many high-quality companies are yielding (at 2.5% or even better) well above the yield on the 10-year U.S. note.

The ECB is Engaging in Massive QE

The ECB is Engaging in Massive QE

Despite the ongoing hawkish rhetoric from the ECB, there are signs that they are getting it: The LTRO can’t work, as you’re essentially just swapping one liability for another one (albeit more long term in duration, therefore making it better for the banks). But note the way the ECB balance sheet is expanding: The consolidated assets of the European system of Central Banks is now 4.4 billion euros or $5.7 billion. In effect, the consolidated ESCB balance sheet is almost two times that of the Fed and its increase over the last 6 months is almost equal to the entire increase in the Fed’s balance sheet over the last several years. Bottom line: the system of European Central Banks (ESCB) has been engaged in massive QE and much more is in the pipeline. With such massive injections of “liquidity” into the European banks, a European Lehman type failure with Lehman’s systemic consequences becomes ever less likely.