The VP Blog

A blog about financial markets and the VP investing framework

Morbidly Obese Australian Banks

Australian banks have grown in size hugely in recent years.  Astonishingly, Commonwealth Bank of Australia is the tenth largest bank in the world, despite Australia having a far smaller population than China, the US and the UK - the other countries who have banks in...

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The case of the disappearing liquidity in corporate bond markets

One of the themes that we have been highlighting this year is the growing bubble in corporate bonds. It is pointless in the first instance to discuss whether super easy monetary policy that has fueled this bubble is appropriate or not. The main thing for investors to countenance is that the current monetary policy regime is having unintended consequences through the formation of a bubble in increasingly scarce liquid fixed income instruments.

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Inflation to hold UK recovery back

There are some notable reasons for near-term reasons for optimism in the UK. The housing market seems to be picking up, industrial production growth is looking up together with PMI data and the equity market has done well. All these are real and significant signs of a better economy in the UK, but the structural challenges remain.

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Central bankers and politicians getting complacent

The economy and financial markets remain in the grips of the most easiest monetary policy the world has ever seen. The balance sheets at the Fed and the BOJ continue to expand at record pace and global real rates have been negative for over 3 years now. Negative real rates create tremendous incentives for borrowers to lever up and often create asset bubbles in debt, equity and property.

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Speculators are giving up on US stock futures

One of the most interesting developments across speculative positioning in the past weeks has been the reversal in net positioning in US stock futures. On an unsmoothed basis speculators most recently turned net short S&P 500 futures for the first time since October 2012 (although they increased their bullish bets slightly following the non-taper at the Fed). On a smoothed basis and including positioning in Dow Jones futures, net long speculative positioning has now declined for 5 months running.

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