John Authers Humphrey-Hawkins

July 17, 2012 4:42 pm by John Authers

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

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John Authers Spain and competitiveness

July 17, 2012 2:53 pm by John Authers

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.

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Posted in Authers' notes |

John Authers Higher, faster, stronger?

July 12, 2012 4:26 pm by John Authers

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

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Posted in Authers' notes |

John Authers Chronicle of a downgrade foretold

July 11, 2012 5:08 pm by John Authers

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.

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John Authers Correlation will lead to opportunities

July 8, 2012 2:58 am by John Authers

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

Posted in Authers' notes, Equity markets |

John Authers Keynes stands tall among investors

July 6, 2012 2:51 am by John Authers

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

Posted in Global economy, The Long View |
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