Category Archives: Investment outlook

Philip Pilkington: Keeping the Sharks at Bay – More than One Way to Do a Bailout

By Philip Pilkington, a writer and journalist based in Dublin, Ireland

While I was writing on the unsustainability of the haircut deals yesterday, the peripheral bond markets in Europe rallied. My argument was that when other countries started getting uppity and demanding haircuts, European government bond investors would slowly but surely come to realise that they were the ones on the end of the hook and that politicians didn’t give a damn about them. This would eventually result in their piling out of the bond markets, sending yields into the stratosphere. The ECB would then be forced to step in and buy up bonds in the secondary market – or perhaps do something even more responsible, who knows?

Philip Pilkington: Facebook – The Second Birth of a Mighty Titan or the Withering of a Weary Giant?

By Philip Pilkington, a writer and journalist based in Dublin, Ireland

Over the past few days Facebook has once again been getting an awful lot of attention. The Facebook company, of course, loves the attention. After all, Facebook’s business model is almost entirely built upon the amount of attention they can garner for themselves.

Philip Pilkington: Is QE/ZIRP Killing Demand?

em>By Philip Pilkington, a journalist and writer living in Dublin, Ireland

Warren Mosler recently ran a very succinct account of why the Fed/Bank of England’s easy monetary policies – that is, the combination of Quantitative Easing and their Zero Interest Rate Programs – might actually be killing demand in the economy.

Warren Mosler recently ran a very succinct account of why the Fed/Bank of England’s easy monetary policies – that is, the combination of Quantitative Easing and their Zero Interest Rate Programs – might actually be killing demand in the economy.

Yes, Virginia, Servicers Lie to Investors Too: $175 Billion in Loan Losses Not Allocated to Mortgage Backed Securities (and Another $300 Billion on the Way)

he structured credit analytics/research firm R&R Consulting released a bombshell today, and it strongly suggests that prevailing prices on non-GSE (non Freddie and Fannie) residential mortgage backed securities, which are typically referred to as “private label” are considerably overvalued.

Paul Krugman Makes Housing Call He Will Likely Come to Regret

I’m behind on commenting on various opinion pieces, thanks to a mild case of food poisoning (ugh), but I wanted to take note of Paul Krugman’s current New York Times op ed, “Is Our Economy Healing?”

As an aside, Krugman has written a lot of good pieces lately that we’ve linked to on income inequality the disastrous austerian policies in Europe, and Republican derangement and duplicity. But he tends to cut the administration far more slack than it deserves.

His current piece voices cautious optimism on the prospects for the economy based on some strengthening in various economic indicators. But astonishingly, the core of his argument rests on the outlook for the housing market:

The Chinese Growth Story

This came in overnight via the FT. China’s economy expanded 8.9 per cent in the fourth quarter of last year, extending a slowdown that began at the start of 2011 and is expected to continue into 2012. That’s a full percentage lower than Q1 2011. So clearly the Chinese economy has slowed in reaction to […]

Philip Pilkington: Fear and Loathing in the Financial Markets – What Happens to the Economy When the Oil Bubble Bursts?

By Philip Pilkington, a journalist and writer living in Dublin, Ireland

In 2008 profits in the US economy crashed out. But they soon bounced back. This bounce was largely due to the profits being reaped in the financial sector – which sickened many given that 2008 was in large measure caused by the financial sector. This always struck me as odd – not to mention unsustainable. If the ‘real’ economy is in the doldrums you can be sure that, in the medium to long run, the business class will go down with it.

In what follows I will draw on Chris Cook’s post on this site the other day to argue that, if he is correct (and I think he may be), judgment day is just around the corner for the profiteers.

Wray: Krugman has shined the headlights on the crucial currency issuer-currency user difference

Edward Harrison here. The post by Randall Wray below is an interesting one because it points out how the world has changed since the end of the gold standard and why the sovereign debt crisis is centered in the euro zone. While I have an Austrian bias overall, for me, MMT is the best way […]

Revisiting Rehypothecation: JP Morgan Markets Its Latest Doomsday Machine (or Why Repo May Blow Up the Financial System Again)

Yves here. One of our ongoing frustrations at NC is when the media and blogosphere get up in arms about what we think are secondary issues.

We’ve been loath to comment on a Thomson Reuters article that claimed that rehypothecation of assets in customer accounts was the reason MF Global customer funds went missing. The reason we’ve stayed away from this debate is that the article, despite its length, did not provide any substantiation for its claim. While it did contend that US customer accounts were set up so as to allow assets to be rehypothecated using far more permissive UK rules, and described how rehypothecation could be abused, it did not provide any proof that this was what took place at MF Global. Note that this does NOT mean we are saying that rehypothecation did not play a role, merely that the article was speculative.

The bombshell testimony of CME chief Terry Duffy yesterday, that a CME auditor heard an MF Global employee say that “Mr Corzine was aware of the loans being made from segregated [customer] accounts,” suggests that some of the money went missing via much more straightforward means, namely, taking it and hoping to be able to give it back if the firm survived.

But there is plenty of reason to be worried about rehypothecation.

From Bad to Worse for the IMF

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

For some time now I have been pointing out poor economic policy implementations within the European economy and how those policies are likely to effect the real economies of European nations. As I re-stated on Monday, my major concern with the current thinking from European economic leaders is their misguided belief that implementing austerity before credit write-downs/offs is a credible policy for a highly indebted, non-export competitive nation with a non-deflatable currency.

Satyajit Das: School for Economists

By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)

Nicholas Wapshott (2011) “Keynes/ Hayek: The Clash That Defined Modern Economics”; Scribe Melbourne

John Mauldin and Jonathan Tepper (2011) Endgame: The Debt Supercycle and How It Changes Everything; John Wiley, New York

To borrow from David Letterman, there might be no business like show business, but there are many businesses like economics.

Has the Global Business Cycle Ended?

By David Llewellyn-Smith, the founding publisher and former editor-in-chief of The Diplomat magazine, now the Asia Pacific’s leading geo-politics website. He is also the co-author of The Great Crash of 2008 with Ross Garnaut. Cross posted from MacroBusiness

So, global PMIs for November have passed. Where do they suggest that the global economy is heading?

Philip Pilkington: A Point of Real Interest in the Latest Fed Minutes

By Philip Pilkington, a journalist and writer living in Dublin, Ireland

JK Galbraith, remarkably, regards the Federal Reserve as a largely powerless institution; he dismisses the idea that the Fed can end a recession by cutting interest rates as a “quasi-religious conviction” that “triumphs over conflicting experience.”… Because Galbraith believes monetary policy cannot increase demand, however, he has a sort of Depression-era vision of an economy in which anything that increases spending is good… And so Galbraith is oblivious to the most serious problem facing modern liberalism: reconciling social justice with full employment.

– Paul Krugman

As the above, rather embarrassing quote from Paul Krugman’s review of JK Galbraith’s classic book The Affluent Society shows, neoclassical economists and neoclassically-trained central bankers have long been enamoured with monetary policy – and are generally angered when it subject to questioning. Why? Well, there are a variety of reasons, some of these are ideological (monetary policy doesn’t stink too badly of nasty government interference with the Holy Market), some of these are purely functional (the central bank has independent control over rates) and some simply have to do with making economists’ silly toy-models work (monetary policy gives neoclassicals a feeling of power over the economy they would otherwise lack).

Anyway, in the present crisis – just as in the great depression – monetary policy has proved completely ineffective. This has caused some – myself included – to question the real efficacy of monetary policy altogether, but it has others continuing the search for that silver bullet.

Does Anybody Who Gets It Believe Central Banks Did All That Much Yesterday?

I’m still mystified as to the market reaction on Wednesday to the coordinated central bank effort at waving a bazooka at the escalating European financial crisis. But as readers pointed out in comments, the big move was overnight, in futures, when trading is thin, and there was no follow through when markets opened. And volume was underwhelming.

Is a Eurofix Around the Corner?

After telling readers that the Eurozone leadership looks to be suffering from “dulled reaction times…so out of line with market events that even if they were to snap our of their stupor now, it would be too late,” news reports suggest that they have finally roused themselves.

Or have they?