Humphrey-Hawkins testimony is not always a non-event. Six years ago, Ben Bernanke used his first Humphrey-Hawkins testimony to signal to the market that the steady rise in the Fed Funds target rate was going to end at 5.25 per cent. That seems an impossibly long time ago now, as does the last big surge in the S&P 500 during the “fool’s rally” of the mid-naughties, which that testimony provoked.
Today’s testimony, however, does indeed appear to have been a non-event, as accurately predicted by Mike Mackenzie, deputising for James Mackintosh, in Monday’s Short View:
The line in his testimony that appears to have attracted most attention is that the Fed “is prepared to take further action as appropriate to promote a stronger economic recovery” – it is hard to see how he could possibly have said the opposite. Judging by Twitter, there is also interest in his comment that QE has been “effective” so far but should not be used “lightly”. It is hard to disagree. Some might disagree about the “effectiveness” line, but successive waves of QE have at least succeeded in holding up asset prices and buying time for US banks, which was probably the main intent. Read more
Does Spain really need to leave the euro? There is a pervasive argument that it does. That would restore its competitiveness, and allow the country to inflate away its debts.
But Xavier Vives, an economist at the IESE business school in Barcelona, suggests otherwise. Spain obviously has some serious problems, but an overvalued currency is not one of them. The charts he presents show that Spain’s share of global merchandise exports has barely declined during the eurozone era – quite a feat given that even Germany’s share has declined during the rise of China. Meanwhile Spain’s services exports have gained market share quite healthily. Devaluation would help but it is not desperately needed.
Will the Olympics have a positive economic impact? The question is a big, and very political one in the UK at present, as London prepares to lock down for the games. But Goldman Sachs’ big analysis, just published, suggests there really could be a return on the London games. Watch the video with Huw Pill, Goldman’s chief European economist:
Among many other points covered in the report that we didn’t reach in the video interview: Read more
Companies are talking down their earnings prospects at a record rate. For the second quarter of this year, negative pre-announcements have outnumbered positive ones by the most since the third quarter of 2001 – the quarter that included the 9/11 terrorist attacks.
That kind of shift in earnings sentiment would usually be damaging for stocks. But in this interview, Citigroup’s Tobias Levkovich comes up with an interesting argument that the worst is already over – providing the US avoids a recession.
Stocks have never been so correlated. The specifics of each company’s profit and loss account have become secondary to the broader factors of the market.
The figures demonstrate this beyond argument. In October last year, for example, the one-month correlation between individual S&P 500 stocks reached 90 per cent. The average since 1990 has been 30 per cent. Similarly, the correlation of different geographical indices has increased steadily. Twenty years ago, emerging markets offered great diversification from the developed world, with a correlation of almost zero. Now, that correlation is close to 80 per cent, according to MSCI indices. Read more
Was Keynes a Keynesian? I had to answer this essay question at university and managed to answer No. The issue was whether John Maynard Keynes’ 1930s ideas really entailed the interventionist policies that bore his name, and which rightly took much blame for 1970s stagflation.
Since then, an era of distinctly non-Keynesian economics by any definition has culminated in a global crash, leaving the world in what looks like what Keynes called a “liquidity trap” – where lower interest rates have little or no effect. In a week when the European Central Bank, the People’s Bank of China and the Bank of England have all eased monetary policy, the debate about Keynes’ legacy rages. It is barely a debate at all – a sterile recitation by each side of a preconceived position. Read more
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This blog is about asset allocation at the global level. It is an ongoing attempt to explain why investors and markets behave the way they do.
John Authers officially takes the "Long View", while James Mackintosh takes the "Short View" when it comes to investment decisions. In practice both of us end up taking both long- and short-term views, and occasionally disagreeing with each other; all comments and disagreements are very welcome.
James Mackintosh is the Financial Times' Investment Editor, writing and presenting the daily Short View column and video. In 16 years at the FT his posts have included comment editor, motor industry editor and hedge funds correspondent, as well as spells in the Parliamentary lobby and Paris. He was the first reporter hired for FT.com, joining two weeks before it launched.
James has a degree in philosophy and psychology from the University of Oxford, where he spent two further years in post-graduate study of philosophy. If he wasn't here, he'd be skiing.
John Authers is the Financial Times' Senior Investment Columnist, writing the Saturday Long View and a regular Monday column. In a 22-year career at the FT, his previous posts have included global head of the Lex column, investment editor, US markets editor, Mexico City bureau chief and US banking correspondent. His latest book is The Fearful Rise of Markets.
John has a degree in Philosophy, Politics and Economics from the University of Oxford, and an MBA from Columbia University. Perhaps more interestingly, he captained the highest scoring team in the history of University Challenge while at Oxford, and also once sung in Pavarotti's backing choir.