Related Articles
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At what point in time will Asia lose interest in the dollar? (NATIXIS)
Once Asia’s economic independence has become sufficient enough, the financial links with the United States will be broken: Asian central banks will stop shoring up the dollar, the United States will have to rebalance its foreign trade with Asia, and Asian savings will be lent (invested) in Asia instead of being lent to the United States, which will accelerate Asia’s financial development. Of course, this will also require a financial modernisation of many Asian countries….
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North America: no longer driving the world, but still key to the global outlook
The U.S. economy definitively turned up in the third quarter, with growth initially reported at a 3.5% pace. Revisions have brought this growth down to 2.8%, but it remains on the surface a satisfactory start to a new expansion. Unfortunately, this incipient recovery is being driven by temporary forces: a combination of fiscal and monetary stimulus, assisted by the beginning of a turnaround in the inventory cycle…
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Understanding the Myth of the Lost Decade
A lot has been written with more to come about the lost decade for equity investors. While it is true that the S&P 500 lost about 10.0% and the government bond market gained 81.82% from 2000 through 2009, the performance profile is lopsided and understates larger discrepancies occurring in other asset classes. However, before looking at the bigger picture, it is important to break down the returns of the past decade into two time periods…
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How have the banks reacted since the crisis? An analysis of their balance sheets (NATIXIS)
The crisis was sparked by the decline in bank lending, due to excess indebtedness among borrowers followed by a halt in the supply of credit by the banks when their funding sources (interbank and bond market) dried up. Today, the deleveraging is continuing (in the United States, the euro zone and the United Kingdom), mainly due to the permanent decline in credit demand. Banking liquidity has been restored due to the very expansionary policies (direct financing of the banks) implemented by central banks….
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“One chart to rule them all”: why U.S. stocks cannot have just started a major long-term bull market
Our primary reason for remaining cautious on U.S. (and European) equities is that most people are still treating this recession as a garden-variety inventory-correction one, instead of a credit-collapse recession different in character from any other developed-nation recession in the last century other than 1930s America and 1990s Japan. But an even bigger-picture view makes us wary over a longer time frame….
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The new world regulation: between words and reality (CITICS SECURITIES)
The S&P 500 and Eurostoxx continued their rally toward the year end of 2009. Since they reached their trough at the end of February 2009, the two indices have rebounded by more than 60%. This dynamism results from a quicker than expected recovery of the US labor market, and from the resilience of households’ expenditure. Despite very high level of unemployment rates, industrialized economies seem to be on track to exit the recession and distance themselves from a deflationist scenario….
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2010 US Equity Outlook: The Shape of Things to Come and Seven Trades
Our fundamental thesis remains that after a corporate over-contraction, the necessary expansion underway to meet existing demand will maintain pressures for a cyclical recovery into 2010. Enterprise spending and hiring will determine the speed of recovery and its sustainability. Instead of a detailed baseline and alternative scenarios, we discuss seven key questions…
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Emerging country risk is still overvalued by the markets (NATIXIS)
Probably because of historical habits, financial markets still consider emerging countries to be riskier than OECD countries: this can be seen from the level of risk premia and the reaction of financial markets when risk aversion rises. This is maybe still true overall, but in many cases it seems to us that emerging countries as investment vehicles are at least as solid as OECD countries today…
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Monetary Policy and the Myth of ‘Bubbles’ in Asset Prices
The theory and practice of monetary policy in the world’s developed economies since the early 1990s has converged around a set of broad principles. Price stability has become the main focus of monetary policy, with most central banks adopting more or less formal inflation targets specifying a goal for some measure of consumer price inflation over time.2 While some central banks such as the Fed and the RBA have notionally…
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The source of financial imbalances: Global excess production capacity (NATIXIS)
Globalisation has led to excess global production capacity: emerging countries have high savings rates, invest a lot and have large available labour reserves; OECD countries have not reduced their production capacity despite the opening of trade with emerging countries. The first effect of this situation is of course the enduring absence of inflation…
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Rebalancing Growth in Asia
With the increasing importance of Asian emerging markets in the world economy, rebalancing growth in developing Asia toward more reliance on domestic demand and less on exports is an important component of the global effort to stabilize world financial and economic systems. Asia’s export-oriented growth strategy played a role in the global imbalances that have characterized the international economy in recent years…
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RISK & UNCERTAINTY IN 2010
Expanding liquidity drives financial markets, particularly when it occurs in the face of a sub-par but recovering economy and weak price inflation. This is the sweet spot in the cycle we so often talk about, and it is the best of all times for stock and corporate bond prices when perception of risk abates…
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Back to normal: Economic recovery and policy exit
The economy is expected to recover further in 2010 with GDP growth to rebound to about 10.1%. 1Q GDP growth is expected to be higher while that in 2Q and 3Q would fall; 4Q should see some rebound. From a QoQ perspective, GDP growth is expected to be more stable and would rebound gradually. As we bid farewell to deflation and move into moderate inflation…
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The dollar/euro exchange rate: Potentially, very significant instability
Since the start of 2009, the dollar has depreciated against the euro as a trend. This depreciation is no longer due to the same causes as before the crisis: the US external deficit has shrunk drastically, but the changeover to virtually zero dollar interest rates has led to massive capital outflows from the United States, and this is currently the cause of the dollar’s weakness…
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How could 2010 possibly be worse than 2009 or 2008?: REAL WEALTH REPORT
The financial storm of 2008 and 2009 will go down in the record books as two out of three of the most devastating in history. Why do I say “two out of three?” Because 2010 promises to be another record year of wild swings, market traps, misguided Wall Street and Washington advice, and based on everything I’m seeing ahead, the most dangerous year of all for investors…
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Why Are Banks Holding So Many Excess Reserves?
The buildup of reserves in the U.S. banking system during the financial crisis has fueled concerns that the Federal Reserve’s policies may have failed to stimulate the fl ow of credit in the economy: banks, it appears, are amassing funds rather than lending them out. However, a careful examination of the balance sheet effects of central bank actions shows that the high level of reserves is simply a by-product of the Fed’s new lending facilities…
