Bloomberg Opinion: A Forgotten Tail Risk Rears Its Head Again | Sep 16, 2020
September 16, 2020, John Authers
…the latest trade data suggest that the sudden stop caused by Covid-19 has intensified the imbalance between the world’s two biggest economies. Generally, most countries have seen imports and exports decrease by the same percentage, which means that their balances, whether positive or negative, have tightened. This is true of Canada, Japan, the U.K. and Germany, as Variant Perception illustrates below. But China and the U.S., whose balances had narrowed slightly during the Trump era, have bucked the trend., The Chinese trade surplus is widening, and the U.S. deficit is deepening:
Meanwhile in the U.S., support for people idled by the Covid shutdown has translated into sharply higher personal incomes. Thus, for now, American policy has backed retail over industry, tending to pull in more imports, while China’s policy of boosting manufacturing rather than consumers has buoyed its exports:
If Americans truly want to avoid a trade deficit with China, then, this is a problem. (It’s not clear to me that the deficit as such should matter much, but evidently plenty of American politicians disagree.) The most likely way to see this change would also involve pain; if politicians cannot find a way to extend the benefits passed to aid people through the Covid slowdown, and the pandemic continues to slow activity, then there is likely to be much less consumer demand, which will feed through into lower imports. But this wouldn’t be a good solution, and indeed Variant Perception suggests that it would probably lead to yet more easy money from the Federal Reserve, which would suck in yet more imports.
Bloomberg Opinion: Robin Hood Is Pillaging the Sheriffs of BlackRock | Jul 29, 2020
July 29, 2020, John Authers
Summertime, and the Trading’s Not Easy….
August is almost upon us, and the northeastern U.S. is now uncomfortably, not to say disgustingly hot. Even if it is harder for people to escape on vacation this year than usual, it seems reasonable to expect markets to give us a dose of calm for the next few weeks.
Unfortunately, history suggests that Augusts aren’t always that sleepy. This chart, produced by Variant Perception with Bloomberg and Macrobond data, shows average monthly returns over the last 30 years for a range of assets.
August turns out to have been the best single month for the VIX volatility index and for the dollar, and the worst month for 10-year Treasury bonds (meaning yields tend to go up). It is also the best month after January for gold.Why so many fireworks amid the blue sky of summer?
Grant's Interest Rate Observer: Money Gusher | Jun 12th, 2020
Bloomberg Opinion: Crash Lesson No. 1? Don't Ignore the Fed's Gusher | Jun 9th, 2020
June 9th, 2020, John Authers
Financial Times: Federal Reserve has encouraged moral hazard on a grand scale | Apr 13, 2020
April 13, 2020, Jonathan Tepper
After a decade of economic growth and generous tax relief, US companies should have held cash piles to sustain them for short periods without revenue. But most borrowed all they could and never saved for a rainy day.
Today credit spreads are increasing, indicating a higher probability of default. However, the anomaly is not the current levels of stress but the unnatural calm that came before. Research by Variant Perception shows that, historically, companies with high levels of net debt compared with their cash flows have had higher costs of funding. But this relationship broke down after the last crisis. It is only now, during the coronavirus crisis, that fundamentals are reasserting themselves and terrible companies are seeing their spreads widen.
WSJ: How Much Will U.S. GDP Decline in the Second Quarter? | Mar 23, 2020
March 23, 2020, Lev Borodovsky
8. Is recession risk fully priced in? According to Variant Perception, markets have often waited for tangible improvement to the underlying event that caused a sell-off before a tradable bottom occurs.
WSJ: European High-Yield Bond Rally May Be Over-Hyped | Jan 22, 2020
January 22, 2020, Paul J Davies
Simon White, managing editor of research firm Variant Perception, expects spreads for both U.S. and European speculative-grade bonds to move slightly higher this year, although not as much as for investment-grade bonds.
“There are clear signs that the credit cycle is maturing,” Mr. White said.
“The fact is that investors are looking through the fundamentals, but central banks remain willing to support markets,” he said.
WSJ: The Fed Is Pausing on Rate Cuts | Oct 31, 2019
October 31, 2019, Lev Borodovsky
The rise in the Variant Perception’s unemployment breadth index could signal higher volatility ahead.
Real Vision: The Central Banks' Monetary Policy Is Backfiring | Sep 18, 2019
September 18, 2019
Simon White, co-founder of Variant Perception, explains his view that as interest rates approach the zero bound, conventional monetary policy tools do not achieve their intended goals, but instead create deflationary pressures. He argues that in a negative-rate world, the private sector increases savings rates to combat their lack of income – causing an even bigger deflationary push. White believes that conventional monetary policy is nearing its limits, and MMT will unleash a flurry of inflation as politicians take control of policy. Filmed on September 13, 2019 in London.
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