Category: Markets

Bitcoin’s big problem: The modern state can make anything it chooses generally acceptable as money

Bitcoin’s big problem: The modern state can make anything it chooses generally acceptable as money

Even allowing for the recent gyrations — If bitcoin and its equivalents could deliver what its champions promise, what’s not to like? Well, American economist Abba Lerner said “The modern state can make anything it chooses generally acceptable as money”. That’s the rub.

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More Thoughts about Japan and US Treasuries

More Thoughts about Japan and US Treasuries

If China wants to accumulate reserves, it will have to buy US Treasuries, even if not every month. Japanese institutional investors are thought to be attracted by the high yields available in the US Treasury market.  But, the wider differentials at short-end make hedging the currency risk more expensive

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The Yuan’s Reserve Currency Status

The Yuan’s Reserve Currency Status

There is nothing quite like a falling dollar to spur take of the erosion of the greenback’s reserve status. For various reasons, countries have chosen to build reserves. Following the decision to hold or build reserves, the question arises as to what currencies to hold. Here’s a take specifically on the Yuan

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Bailout bank Monte dei Paschi sub deal three times over-subcribed as Euro hits 3-year high

Bailout bank Monte dei Paschi sub deal three times over-subcribed as Euro hits 3-year high

A subordinated deal in a bank bailed out just a year ago and the currency at a three -year high underscore European investor confidence.

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Bill Gross: The bond bear actually began 18 months ago, after the Brexit vote

Bill Gross: The bond bear actually began 18 months ago, after the Brexit vote

Even though commentary focused on the prevailing bond levels today, what Gross is saying is that the bottom in yields was actually July 2016, 18 months ago.

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Proof that bonds are moving more because of the Fed than China

Proof that bonds are moving more because of the Fed than China

2018 has started with a lot of angst about bond yields. And there is some cause to be concerned. But this owes to an economy that is growing more briskly and to the Fed that has been and probably will be more hawkish than you think.

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It’s the booming economy driving bond prices down, not Chinese selling

It’s the booming economy driving bond prices down, not Chinese selling

Until we see slowing in the US economy, we should expect rates to rise somewhat and for a modest steepening of yields. If inflation starts to rise, expect these trends to become even more pronounced.

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On China, Japan and the Eurozone’s determining US interest rates

On China, Japan and the Eurozone’s determining US interest rates

There are a lot of stories floating around today that moves by central banks in China, Japan and Europe are having – and will continue to have a noticeable impact on US interest rates. Some are even saying this marks the end of the long bond bull market. I am sceptical of these claims because I have fundamental disagreements with the ‘model’ they use to make those claims.

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Gundlach vs Gross: Here’s how a bond bear market starts

Gundlach vs Gross: Here’s how a bond bear market starts

It’s semantics whether 2.50%, 2.63% or 3.00% is the right level to declare a bear market in bonds. What matters is that the two best-known bond market investors are now saying we are in or near a bond bear market.

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Grantham: US asset bubble to pop in 2019

Grantham: US asset bubble to pop in 2019

Veteran value investor Jeremy Grantham says that we won’t see an imminent end to the US bull market. He expects a melt-up, not a meltdown. But Grantham goes on to say that we will see an asset bubble implosion in 2019, with as much as 50% downside.

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Minsky’s financial instability hypothesis and the Fed’s reaction function

Minsky’s financial instability hypothesis and the Fed’s reaction function

As the Federal Reserve meets today to decide how to communicate its messaging on future rate hikes and balance sheet reduction, financial stability will play a key role. The risk of overheating was real. So let’s put some framing around this issue and ask how the Fed reacts as the data come in down the line.

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No, the Treasury curve isn’t flattening because the ECB and BoJ are ‘printing money’

No, the Treasury curve isn’t flattening because the ECB and BoJ are ‘printing money’

My model of interest rates and currencies says that long-term yields are just an amalgam of short-term yields with a term premium tacked on. There’s nothing there about money flows from people moving money to where yields are highest. I think this matters when thinking about what the flattening yield curve signals as central banks begin to tighten globally.

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