Tag Archives: Featured

(from my colleagues Dr. Win Thin and Ilan Solot) Brazil’s government scored an important set of political victories yesterday, many of which impact the fiscal accounts.  It’s too soon to say that the tide has decidedly changed, but there are some positive signs, and asset prices are responding accordingly. By a close margin, the government managed to maintain two important vetoes.  With a margin of only six votes, the veto stopped an increase of nearly 60% in the salaries of judiciary...

Amid light news, the US dollar’s recent gains have pared slightly.    Attention turns to the US, were several Fed officials speak, October housing starts/permits will be released, and then later in the session, traders will peruse the minutes from last month's FOMC meeting.   The euro held Tuesday's low near $1.0630, and short-covering lifted the single currency to almost $1.07 before the bears showed their hand.   Similarly, after the JPY123.50 level was tested, the dollar pushed back,...

The EU is warning that Austria, Italy, and Lithuania are at risk of not achieving their 2016 budget goals.    It also warned Spain that is too may miss its target.  Nevertheless, the EU said there were no serious violations.  At the same time, the EU will exempt proven refugee spending from the budget scorecard.  In light of the attack on Paris, the EU's fiscal discipline faces a new challenge.  French President Hollande is arguing that the security pact trumps the stability pact.  France...

1.  In the Commitment of Traders reporting week ending November 10 covers the few days before the US employment data and a few days after.  Speculative participants made five significant (10k contracts or more) adjustments to gross positions in the currency futures.  The prior reporting period saw only three significant adjustments, and in growing gross short euro, yen, and Swiss franc positions. This week, four currencies, euro (+14 .7k contracts), yen (+16.7k contracts), Canadian...

At the Cato Monetary Conference this week, Scott Sumner said he had a “modest” proposal, that there should be a highly liquid futures market in Nominal Gross Domestic Product (NGDP).  This caught my attention, as the futures market is a topic near and dear to my heart (I write about it every week). Sumner is known for his view that the Fed should target NGDP as the basis for monetary policy. So a futures market that predicts it would be convenient. Let’s look at his idea more closely. What,...

In fiscal year 2014, which ended September 30 2014, the Federal government of the United States reported a cumulative deficit of US$484 billion, while the total debt outstanding increased by more than a trillion dollars. For fiscal year 2015, the difference was negligible because the US Treasury conducted so called emergency measures to adhere to the Congressional imposed debt ceiling. As soon as Congressional leaders agreed among themselves, the debt ceiling was raised and US debt...

I have written previously about the interest rate, which is falling under the planning of the Federal Reserve. The flip side of falling interest rates is the rising price of bonds. Bonds are in an endless, ferocious bull market. Why do I call it ferocious? Perhaps voracious is a better word, as it is gobbling up capital like the Cookie Monster jamming tollhouses into his maw. There are several mechanisms by which this occurs, let’s look at one here. Artificially low interest makes it...

In last week’s article, we explained how the yield curve could cause GDP to contract in The Yield Curve and GDP – a causal relationship. Some of our readers suggested the analysis was wrong on back of an outdated view of modern money creation. The critics claim modern banks are not dependent on central bank reserves to create additional money; citing a Bank of England article from 2014 (which we have been well aware of) [A] common misconception is that the central bank determines the...

Many people agree that it’s important to move to a free market in money (i.e. the gold standard). They also say that it’s just as important to fight bad taxes and regulation. In their view, government interference in the economy is like friction in a car. The more friction you add, the slower the car goes. One source of friction is much the same as any other. Let me explain why it doesn’t quite work that way, using a few examples. Suppose the government imposes an expensive tax on employers...

According to John Henry Smith, fund managers are too much focused on bench-marking their performance to a market index, over-emphasizing the importance of “alpha”. But asset managers should abstract from alpha and construct portfolios that have lower risk and higher return than the market. Impossible? This post is the second part of The Fallacies of Portfolio Volatility Measurements. The Market Return For reasons of consistency, fund managers are primarily focused on benchmarking their...