Archive for the ‘Financial Markets/ Finance’ Category

We should also look at redistributive effects of financial deregulation

October 10, 2014

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What could be the biggest risks for markets going ahead?

October 9, 2014

Vineer Bhansali of PIMCO has this article where he lists all the possible risks in future and the probability of them happening. Also the indicators one should track to monitor these risks like for inflation  there is PCE and so on.

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Reforming NY Fed and changing its culture…

October 9, 2014

WSJ Blog interviews Professor David Beim who was behind the report to study and reform NY Fed.  Though NY Fed did not do much to change and we have quite a story on the cards now.

So what did he find in NY Fed:

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Skills of Keynes as a fund manager…

October 7, 2014

David Chambers, Elroy Dimson and  Justin Foo have this interesting paper on Keynes and his skills in fund management. It is kind of known that he was quite skillful at managing money and left a fortune at the end. He could not see the depression and lost a lot of miney but at the end of the day (EoD as called by market guys), he was in positive.

This paper tracks how Keynes managed the endowment fund of King’s College. Keynes was a bursar of the college and responsible for the endowment.Keynes shifted the fund allocation from real estate to equities and till date Kings has higher asset allocation towards equities compared  to other colleges:

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Has China’s monetary policy become more “standardized”?

October 7, 2014

The title should actually read Has China’s monetary policy become more “advance country like”? I mean whatever they do is deemed as a standard even when they are all wrong on the matter.

Anyways, this note by John Fernald, Eric Hsu, and Mark Spiegel look at how Chinese mon pol has evolved over the years. The changes in Chinese economy have led monetary policy to react just like it does in the west:

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Central bankers as new philosophers to fix world economy and why that is a problem..

October 6, 2014

A brilliant column by Prof Harold James bringing a lot of things under one column.

He points how Europe and US have differed on philosophy of life. The philosophy of course comes from one’s world values which are shaped by culture and history. These differences reflect in all things including economic policy. Whereas US has been much more active trying to stimulate their economies out of trouble, Europeans have dithered for a long time.

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How politics, high cost of education and credit ratings have messed up a Law School and its students..

October 2, 2014

Mark Pullam of City Journal has this worrisome tale of Thomas Jefferson School of Law in San Diego. The school is about to default on $133 mn of tax-exempt bond. I mean how messed up things become when the core purpose of anything is defeated and in this case it is law school.

Just replace law school with any big financial firm and add a few more zeroes, the story is not anything different. How the school got tax exemption on its bonds and fancy credit rating which got many investors interested. And then all collapsed:

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Re-discovering the Phillips curve and it is actually back to life in Europe…

October 1, 2014

Philips Curve showed the trade-off between inflation and unemployment. If you want low unemp, you tolerate high inflation. If you want low inflation, you get higher unemployment. The idea died during 1970s when we had both high inflation and high unemployment making the Philips Curve vertical.

However, old ideas keep coming back. In these interesting times, Europe needs both. Higher inflation and lower unemployment is not really a trade-off. They need both these.

László Andor EU Commissioner for Employment, Social Affairs and Inclusion has this interesting piece revisiting the Philips Curve. There are interesting graphs which show Philips Curve has flattened out in France, Spain and Germany:

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Why is Nouriel Roubini so surprised over surging markets?

October 1, 2014

Well, this has been the story for a very long time. Economic prospects have declined (age of diminishing expectations as Prof Krugman wrote) and continue to decline but markets remain as great as ever. So why is Nouriel Roubini surprised? I mean he even saw this irrationality build-up before the crisis .  This should not be anything new to him…

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Time for helicopter drop of money?

October 1, 2014

Biagio Bossone, Thomas Fazi and Richard Wood say none of the policies are working. We need to look at Friedman (or Bernanke) idea of Helicopter drop of money.

But the traditional Friedman view of central bank directly providing money to people cannot work. We instead need a government helicopter drop:

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Reconstructing macro theory to manage maco policy

September 30, 2014

Prof Joseph Stiglitz chips into the debate over state of macro.

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Why US yields trending lower despite Fed intending to exit?

September 30, 2014

These are the recent trends in US treasury yields:

  • US 10 Year started the year at 3% and is currently at 2.5%.
  • 30 year at 3.92% and currently at 3.18%.
  • 5 year is steady starting at 1.72% and currently at 1.77%.

Jérémie Cohen-Setton of Bruegel Blog wonders why is this happening? As Fed is expected to go off the stimulus, the yields should actually be rising. We are staring at the same problem as seen in 2005 called Greenspan conundrum (then most macro things were named after him).

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Connections between NY Fed and Wall Street (read Goldman) getting exposed

September 29, 2014

Over the weekend, some really interesting and scandalous story broke out. Propublica’s Jake Bernstein wrote this long article showing how the cosy relationship between NY Fed and Wall Street. As if this was anything new really. Michael Lewis adds more to the story.

The difference is Bernstein gets this former NY Fed  regulator Carmen Segarra to speak up. Segarra was an onsite supervisor a Goldman Sachs. Onsite regulators are those who actually sit in the office of the regulated entity. She was assigned Goldman Sachs and in act of bravado she taped her conversations while being in conversation with NY Fed and Goldman officials. The tapes show how NY Fed officials were just so afraid to ask Goldman to behave.

And this was after NY Fed actually appointed someone to sort its culture right. Lewis adds:

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Thinking about the yield curve in Euroarea..

September 26, 2014

An oldish speech by Vítor Constâncio of ECB, which I missed linking.

Euroarea is both frustrating and interesting in most matters. It does not change when we think about the yield curve.

First, what is it about the yield curve?

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When economic policy becomes a crime and policymakers criminals…

September 25, 2014

Prof. Michael Boskin reflects on the recent reaction by Venezuelan polity on Prof Ricardo Hausmann. Prof Ricardo Hausmann questioning economic policy in Venezuela in this article Should Venezuela Default?” Hausmann is a former minister of Venezuela and currently a Prof at Kennedy School.

Prof Boskin says this is getting bizarre:

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Fed has a problem buying private sector assets and ECB has a problem buying govt. assets….

September 23, 2014

Economists differ greatly on what a central bank can do and not do. Adam Posen is in the camp

In this oldish speech released recently, he reflects on recent ECB measures. He says somehow the bad ideas that central banks cannot stimulate economies keeps coming back:

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Book Review: Wall Street – A History (From its beginnigs to the fall of Enron)

September 23, 2014

Certain books never really get the publicity despite their importance. Charles Geisst of Manhattan College has written one such book on Wall Street’s history. The book is pretty timely as well given Wall Street’s shocking display ethics and behavior in recent times. As per the author, this is the first history of wall street but I have hardly seen anyone recommending the book.

I mean just like most history books, if people had read Geisst’s book they would have said this time is nothing different. Wall Street has been like this for a long time. Ironically, the street that gets its name from the Wall constructed by Dutch to protect them from English, the world is now trying to create a wall to save them from the excesses of the wall street.

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UK Finance sector wages: explaining their high level and growth..

September 22, 2014

Joanne Lindley and Steven McIntosh research the high wage premium in UK finance sector.  Earlier researchers at HBS looks at French finance sector.

They say it is basically because the sector distributes a higher share its profits within employees compared to other sectors:

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T.L.T.R.O. is Too Low To Resuscitate Optimism

September 22, 2014

Silvia Meiser of Bruegel reflects on the low bidding for TLTRO funds.

Out of the expected EUR 180 bn of funds, banks only bid for EUR 83 bn:

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Making sense of dissents: a history of FOMC dissents..

September 22, 2014

Dissent is part of human life. People assenting or dissenting to other’s views is quite common. However, when it comes to central banking it becomes quite abnormal and generates significant hype.

Daniel  Thornton and David Wheelock of St. Louis Fed have this superb paper tracking history of FOMC dissents.

This article presents a record of dissents on Federal Open Market Committee (FOMC) monetary policy votes from the Committee’s inception in its modern form in 1936 through 2013. Dissents were rare during the Committee’s first 20 years but began to increase in the late 1950s. The number of dissents increased sharply during the late 1970s and early 1980s, when both inflation and unemploy- ment were unusually high. However, at other times, the number of dissents was not correlated with either inflation or the unemployment rate. A review of FOMC records and published statements indicates that dissents often reflect fundamental disagreement about (i) how to achieve the Committee’s macroeconomic objectives and (ii) the current stance of policy. The number of dissents also appears to have been influenced by the language used by the FOMC to communicate instructions to the manager of the System Open Market Account.

There is a lot of trivia and interesting stuff in the paper:

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