• Re-calibrating our thinking about Brexit after MPC rate cut

    The Bank of England has cut interest rates and started a quantitative easing program that includes both government and corporate bonds. This approach was enough to send the pound Sterling down to $1.31 and 10-year gilt rates to a record low of 0.677%. While I reiterate my previous bullish views on Anglo-Saxon long rates, US dollar strength and on the UK […]

    Re-calibrating our thinking about Brexit after MPC rate cut
  • The EU as a larger Germany post-Brexit and Hugh Hendry’s Eclectica Fund commentary

    Stocks have mostly recovered since Brexit and the strong dollar and Yen have reversed much of their overvaluation in recent days. The question remains as to what the fallout from the UK’s departure from the EU will be. I continue to believe the near-term economic impact will be muted, and that Brexit will come to be seen as mostly a political event. But it is a political event with wide-reaching potential ramifications.

    The EU as a larger Germany post-Brexit and Hugh Hendry’s Eclectica Fund commentary
  • The problem at euro banks

    As the Brexit worries began two weeks ago, I flagged Italian banks – more than the UK economy – as one of my principle concerns, because of the potential to cause systemic damage to the euro system. And now the contagion is spreading, with Deutsche Bank the most obvious weak link. The question now is twofold. First, does the Italian banking crisis solve itself without a major overhaul of EU institutional arrangements. Second, if not, how does the EU solve this problem? Some brief thoughts below.

    The problem at euro banks
  • The British political landscape after the EU referendum

    This is going to be a quick post to update you on where I think things are headed now that we have the two final candidates for UK Prime Minister. My overall view continues to be that the base case is for a moderate negative economic, assuaged by currency, fiscal and monetary offsets, causing the UK to avoid recession but with longer-term hits to growth from trade frictions and a loss to jobs in the financial sector. The issues now are immigration, the timing of the invocation of Article 50 and the single market.

    The British political landscape after the EU referendum
  • Leading UK PM Brexit strategies taking shape with May and Leadsom

    At this juncture, the leading candidates for British Prime Minister are both women on either side of the referendum vote. However, both are saying they will guide the UK out of the European Union. Meanwhile Chancellor George Osborne’s fiscal stimulus looks set to concentrate on lowering corporate tax, which will continue to widen the income gulf, a major contributor to the vote to leave the EU. Markets have stabilized with the Pound taking the brunt of the post-Brexit fallout.

    Leading UK PM Brexit strategies taking shape with May and Leadsom
  • UK fiscal and monetary policy offset to kick in, bullish for gilts

    UK Chancellor Osborne has now abandoned his 2020 budget surplus target. Combine this with the dovish statements by Bank of England governor Mark Carney yesterday and you can see some serious policy changes in play to minimize the near-term downside risk. But, of course the risks to the UK are longer-term and the near-term risks are mostly elsewhere in the global economy. I continue to believe this favours safe assets i.e. government bonds.

    UK fiscal and monetary policy offset to kick in, bullish for gilts
  • Why Britain might not leave the EU and the next Prime Minisiter could be female

    This is a quick run through of the post-Brexit vote decision tree. The opportunities and constraints after the UK vote to leave the EU are now coming into view. It is clear that the UK is likely to leave the EU given not only statements by Prime Minister Cameron but also the Home Secretary Theresa May, both of whom campaigned for ‘Remain’. But it is also clear that the EU will not broker formal or informal discussions with the UK until the UK has invoked Article 50, which can only be done by an act of Parliament. Below, I want to run through some of the constraints in order to build a few scenarios that I see as possible now that we are a week into the post-Brexit era.

    Britain's Home Secretary Theresa May delivers her keynote address on the second day of the Conservative party annual conference in Manchester, northern England September 30, 2013.  REUTERS/Phil Noble (BRITAIN  - Tags: POLITICS SOCIETY) - RTR3FFSM
  • The downside risks introduced by the UK Brexit referendum

    The unexpected ‘Leave’ victory in the recent referendum on EU membership introduces considerable political risk by elevating tail risk scenarios to reasonable worst case status. However, in a global economy that is already slow and already lacks policy space, the referendum outcome also introduces economic and financial risk. Below I have some general thoughts on those risks, with the US dollar, Italian banks, and Japanese deflation foremost among them. At a later point, I hope to also go into some more detailed scenario handicapping.

    The downside risks introduced by the UK Brexit referendum
  • Why I’m on US recession watch despite 2% growth

    As I start this post, I am naming it “Why I’m on US recession watch despite 2% growth”. I don’t know if that name will stick when I publish this piece; nonetheless, that is the theme I am trying to get across. When I look at the economic data, it shows a near-term in the 2% growth range – stall speed or slightly below. But when I look at the same data for medium-term clues, I still see reasons to be concerned, and, therefore, I continue to be on recession watch. Finally, I am not at all sure the Fed sees the picture as I do. December was a policy mistake. And I can’t rule out others going forward.

    Why I’m on US recession watch despite 2% growth
  • Expansions that didn’t die in their beds but were murdered by the Federal Reserve

    I’ve been following the Fed’s forward guidance recently and, frankly, I find it confused. On the one hand, it was a clear mistake to have raised rates in December. We see this now in retrospect due to the tightening of financial conditions that policy divergence , a strong dollar and the collapse of oil prices had wrought in January and February. The Fed recognized the shift and backpedaled on its ‘promise’ of 300 basis points of rate hikes through 2018. But, now that financial conditions have eased, the Fed is back to talking up rate hikes yet again – this, despite a flattening yield curve.

    Expansions that didn’t die in their beds but were murdered by the Federal Reserve

All Content

Re-calibrating our thinking about Brexit after MPC rate cut

Re-calibrating our thinking about Brexit after MPC rate cut

The Bank of England has cut interest rates and started a quantitative easing program that includes both government and corporate bonds. This approach was enough to send the pound Sterling down to $1.31 and 10-year gilt rates to a record low of 0.677%. While I reiterate my previous bullish views on Anglo-Saxon long rates, US dollar strength and on the UK […]

Read more ›
The EU as a larger Germany post-Brexit and Hugh Hendry’s Eclectica Fund commentary

The EU as a larger Germany post-Brexit and Hugh Hendry’s Eclectica Fund commentary

Stocks have mostly recovered since Brexit and the strong dollar and Yen have reversed much of their overvaluation in recent days. The question remains as to what the fallout from the UK’s departure from the EU will be. I continue to believe the near-term economic impact will be muted, and that Brexit will come to be seen as mostly a political event. But it is a political event with wide-reaching potential ramifications.

Read more ›
The problem at euro banks

The problem at euro banks

As the Brexit worries began two weeks ago, I flagged Italian banks – more than the UK economy – as one of my principle concerns, because of the potential to cause systemic damage to the euro system. And now the contagion is spreading, with Deutsche Bank the most obvious weak link. The question now is twofold. First, does the Italian banking crisis solve itself without a major overhaul of EU institutional arrangements. Second, if not, how does the EU solve this problem? Some brief thoughts below.

Read more ›
The British political landscape after the EU referendum

The British political landscape after the EU referendum

This is going to be a quick post to update you on where I think things are headed now that we have the two final candidates for UK Prime Minister. My overall view continues to be that the base case is for a moderate negative economic, assuaged by currency, fiscal and monetary offsets, causing the UK to avoid recession but with longer-term hits to growth from trade frictions and a loss to jobs in the financial sector. The issues now are immigration, the timing of the invocation of Article 50 and the single market.

Read more ›
Leading UK PM Brexit strategies taking shape with May and Leadsom

Leading UK PM Brexit strategies taking shape with May and Leadsom

At this juncture, the leading candidates for British Prime Minister are both women on either side of the referendum vote. However, both are saying they will guide the UK out of the European Union. Meanwhile Chancellor George Osborne’s fiscal stimulus looks set to concentrate on lowering corporate tax, which will continue to widen the income gulf, a major contributor to the vote to leave the EU. Markets have stabilized with the Pound taking the brunt of the post-Brexit fallout.

Read more ›
UK fiscal and monetary policy offset to kick in, bullish for gilts

UK fiscal and monetary policy offset to kick in, bullish for gilts

UK Chancellor Osborne has now abandoned his 2020 budget surplus target. Combine this with the dovish statements by Bank of England governor Mark Carney yesterday and you can see some serious policy changes in play to minimize the near-term downside risk. But, of course the risks to the UK are longer-term and the near-term risks are mostly elsewhere in the global economy. I continue to believe this favours safe assets i.e. government bonds.

Read more ›
Britain's Home Secretary Theresa May delivers her keynote address on the second day of the Conservative party annual conference in Manchester, northern England September 30, 2013.  REUTERS/Phil Noble (BRITAIN  - Tags: POLITICS SOCIETY) - RTR3FFSM

Why Britain might not leave the EU and the next Prime Minisiter could be female

This is a quick run through of the post-Brexit vote decision tree. The opportunities and constraints after the UK vote to leave the EU are now coming into view. It is clear that the UK is likely to leave the EU given not only statements by Prime Minister Cameron but also the Home Secretary Theresa May, both of whom campaigned for ‘Remain’. But it is also clear that the EU will not broker formal or informal discussions with the UK until the UK has invoked Article 50, which can only be done by an act of Parliament. Below, I want to run through some of the constraints in order to build a few scenarios that I see as possible now that we are a week into the post-Brexit era.

Read more ›
The downside risks introduced by the UK Brexit referendum

The downside risks introduced by the UK Brexit referendum

The unexpected ‘Leave’ victory in the recent referendum on EU membership introduces considerable political risk by elevating tail risk scenarios to reasonable worst case status. However, in a global economy that is already slow and already lacks policy space, the referendum outcome also introduces economic and financial risk. Below I have some general thoughts on those risks, with the US dollar, Italian banks, and Japanese deflation foremost among them. At a later point, I hope to also go into some more detailed scenario handicapping.

Read more ›
Why I’m on US recession watch despite 2% growth

Why I’m on US recession watch despite 2% growth

As I start this post, I am naming it “Why I’m on US recession watch despite 2% growth”. I don’t know if that name will stick when I publish this piece; nonetheless, that is the theme I am trying to get across. When I look at the economic data, it shows a near-term in the 2% growth range – stall speed or slightly below. But when I look at the same data for medium-term clues, I still see reasons to be concerned, and, therefore, I continue to be on recession watch. Finally, I am not at all sure the Fed sees the picture as I do. December was a policy mistake. And I can’t rule out others going forward.

Read more ›
Expansions that didn’t die in their beds but were murdered by the Federal Reserve

Expansions that didn’t die in their beds but were murdered by the Federal Reserve

I’ve been following the Fed’s forward guidance recently and, frankly, I find it confused. On the one hand, it was a clear mistake to have raised rates in December. We see this now in retrospect due to the tightening of financial conditions that policy divergence , a strong dollar and the collapse of oil prices had wrought in January and February. The Fed recognized the shift and backpedaled on its ‘promise’ of 300 basis points of rate hikes through 2018. But, now that financial conditions have eased, the Fed is back to talking up rate hikes yet again – this, despite a flattening yield curve.

Read more ›

Multiple Fed officials now signalling rate hikes

Perhaps we are misreading the Fed’s intentions going forward because multiple Fed officials are signaling the Fed’s intention to raise interest rates multiple times in 2016 and 2017. And while rate hikes are usually considered tightening, to the degree financial market volatility and energy sector debt stress have diminished, rate hikes could be a wash given the interest income they add to the US private sector.

Read more ›
The new normal that never was

The new normal that never was

The extended period of low growth following the Global Crisis was denoted the ‘New Normal’ by some. This column argues that the period is still ongoing, and would be more usefully described as the ‘New Abnormal’. Far from being an equilibrium, the low growth was achieved by progressively more aggressive and unprecedented monetary policy actions, in response to a series of financial panics. Furthermore, the aftershocks of the Crisis are still colliding with a series of profound structural changes to and instabilities in the global economy.

Read more ›