12 Years of VP vs Noise

Sharing the ideas and experiences that have influenced our work

Forward Guidance: “Stronger and Longer”

Yesterday’s FOMC saw the first tapering of bond purchases by the Fed, by $10 billion per month. To soothe markets, the Fed also reinforced its forward guidance, making it “stronger and longer”, by a promise to leave the Federal Funds rate close to the zero bound “well past the time that the unemployment rate declines below 6.5%”.

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Strong euro starting to bite on European exporters

Nothing comes for free and with the eurozone periphery deflating its way to a currency account surplus the aggregate external balance of the euro area has increased to its highest level ever at more than 2% of GDP. Coupled with tighter liquidity (less euros sloshing around), improved sentiment and repatriation ahead of AQR the EUR has seen strong support this year.

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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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