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James Mackintosh

Goldilocks is back! Goldilocks was the famous “not too hot, not too cold” economy which under US Federal Reserve chairman Alan Greenspan was able to deliver rising shares without the Fed pouring cold porridge over asset prices in the form of rate hikes.

Today’s jobs data suggests exactly that can happen again, thanks to the oddity of the market and the central bank focusing on different measures. 

James Mackintosh

The US is about to get a new Treasury secretary, assuming the White House can steer Jack Lew through the painful nomination process in Congress.

One question that’s sure to come up: is he in favour of a strong dollar? 

The UK’s inflation-linked gilts markets have just seen their largest one-day rise in 25 years – thanks to the decision of statisticians to do nothing. James Mackintosh, investment editor, looks beyond gilts to analyse what the real yields on government bonds are telling us.

James Mackintosh

It took just two months of Standard & Poor’s control of Dow Jones Indexes (CME sold it in return for a stake in the new and larger S&P DJ Indices group) for S&P to start thinking about how to reform the venerable Dow Jones Industrial Average, the second-oldest index still going.

It desperately needs reform: three of the US’s 10 largest companies are excluded, and it is calculated by averaging share prices, a daft approach better suited to the days of slide rules. This video explains – charts after the break show how the Dow has performed, and discuss how investors should respond:

 

John Authers

As predicted, there is more to say about the London housing market. It is widely known that the buying pressure on prime London properties is coming from overseas. The eurozone crisis and the creation of fortunes by the commodities boom have helped push lots of money into the nicer neighbourhoods of central and west London.

But I had not previously grasped that foreign demand was also driving segments of the market below the true “prime” postcodes, and that that foreign demand is not primarily European or Middle Eastern but rather from Hong Kong, Singapore and Malaysia. That is the strong message from this extraordinary chart from Jones Lang LaSalle, shared by Ed Hammond, our property correspondent, in the latest Note video: 

John Authers

Judging by the response to my Monday column, a lot of people are interested in central London property. As that has been followed by news that a London house is on sale with an asking price of more than £100m, in Hampstead, it’s easy to see why. One of many requests was for more granular data.

Thankfully, I can oblige. London, obviously, cannot and should not be treated as one market. In particular, “prime” central London, because of its appeal to international buyers, seems to follow very different dynamics from the rest of the capital. That appeal varies according to area. The following chart, provided by Hometrack, plots every Greater London broad postcode on two scales – their performance since the overall market first peaked five years ago, and their actual price. 

John Authers

Marc Chandler of Brown Brothers Harriman is always  interesting. His take on the QE3 debate, ahead of the FOMC’s next decision, might startle many in the US: the US economy is in an enviable position – why is there any need for dramatic new exceptional measures?

Evidently many Americans do not feel as though they are much to be envied, and unemployment has dragged on at levels that are politically unacceptable. But America’s post-Lehman economic trajectory, with the recovery looking ever more firmly founded, should certainly be the envy of western Europe and Japan. 

John Authers

Whether it likes it or not, the Federal Reserve has been pulled into the political thickets. The demand is for it to “do something”. Whatever it does at its meeting this week will have  political ramifications, and you do not need to belong to the Ron Paul faction to question whether further QE of any kind is necessary at this stage.

As James Mackintosh pointed out in the Short View, inflation expectations and asset prices are both rising now, rather than falling as they were before QE1 and QE2. This Fed has a philosophical aversion to deflation, but there appears to be no imminent danger of that. 

James Mackintosh

The most profitable way to be wrong over the past five years was to bet that frantic printing of money by central banks would create inflation – so buy gold. Since the start of 2007 gold has risen at an annualised 19 per cent, a tasty return, particularly when compared to equities.

Yet, there’s been no sign of consumer price inflation, even as the US Federal Reserve explicitly targets asset price inflation (Fed jargon calls this the “portfolio channel” for monetary transmission of quantitative easing; in English that translates as rigging the market). 

John Authers

Mario Draghi has at the very least pulled off a great coup of expectations management. On Thursday he said exactly what everyone expected him to say. Markets had already rallied in hope for more than a month ahead of his announcement. This might usually be the cue for a sell-off, but instead the euro held steady, while peripheral bond and stock markets went to the races.

Spain’s 10-year yield is now below 6 per cent, while the buying opportunity when this risk-on wave started now looks to have been immense. Spanish shares (as measured by the Ibex) are up by a third in the two months, while Eurozone bank stocks (as measured by the FTSE Eurofirst index) have gained more than 50 per cent. I discussed all of this with Jamie Chisholm in the first of the new series of Authers’ Notes:

The larger questions are whether this can continue, and if there is any way to time the risk-on and risk-off waves.