Opinion

Anatole Kaletsky

China-Russia is a match made in heaven, and that’s scary

Anatole Kaletsky
May 22, 2014 17:27 UTC

putin-li

Check-mate.

As Russian President Vladimir Putin signed Russia’s historic $400 billion gas-supply agreement with China, he must have felt the satisfaction of a chess grandmaster revealing the inexorable outcome of a complicated endgame.

In theory, the next phase of the chess match between Russia and the West in Ukraine will only begin with the Ukrainian presidential election on Sunday. But Putin’s positioning of the pieces means the outcome is pre-ordained, no matter who emerges as the next president in Kiev.

putin & troopsNo wonder the Russian stock market and ruble have both rebounded — with the MSCI Russia index gaining 20 percent in dollar terms since its low point on March 14.

 

Having secured the territorial windfall of Crimea in March, Putin went on to achieve his main tactical objective in April. This was to destabilize Ukraine to the point where nobody could seriously contemplate the country joining the European Union, much less the North Atlantic Treaty Organization.

Just as important, from Putin’s standpoint, the combination of internal chaos and improvised plebiscites and Russian military exercises being conducted on the Ukrainian border, distracted Western attention from the Crimean issue. He deflected the threat of additional sanctions from the legality of Russia’s annexation to the feasibility of Ukraine’s presidential election.

Euro zone’s big problems require big fixes

Anatole Kaletsky
May 16, 2014 12:56 UTC

ECB President Draghi addresses a news conference in BrusselsAt last, the European Central Bank seems ready to inject some adrenalin into the moribund euro zone economy. After last week’s news conference, when European Central Bank President Mario Draghi strongly hinted that action would take place after the June 5 council meeting, there have been a host of interviews and leaks specifically describing the new ideas the bank has in mind.

The biggest measure, now almost a foregone conclusion, will be a cut in the interest rate the ECB pays on bank deposits from zero to negative 0.1 or 0.2 percent. Bank officials have also hinted at several additional stimulus measures: extension of loans to commercial banks at low fixed rates for three years or even five years; ECB purchases of bank loans to small and medium enterprises, packaged into asset-backed securities; and concessional lending to European banks on condition they pass on these funds to small and medium businesses.

The leaks generated a great deal of enthusiasm this week. The euro weakened from almost $1.40 to $1.37; bond yields in Italy and Spain fell to record lows; and European stock markets jumped 1 percent to 2 percent.  Wednesday, the market reaction crossed the Atlantic, with interest rates on U.S. Treasury bonds falling to their lowest levels in six months.

No reason for these stock market jitters

Anatole Kaletsky
May 8, 2014 21:49 UTC

anatole -- unhappy trader

“Sell in May and go away.”

This stock market adage has served investors well four years in a row. Every year since 2010, stock markets around the world have suffered significant corrections between a high reached in May and a low in the summer or early autumn: by 15 percent in 2010, 19 percent in 2011, 9 percent in 2012 and 5 percent in 2013, as gauged by the Standard & Poor’s 500.

Given that the Dow Jones Industrial Average hit its highest level ever on April 30, while the S&P 500 peaked less than 1 percent shy of its all-time record, it may seem sensible to follow the seasonal adage. Regardless of one’s views about the long-term prospects for the world economy.

That is precisely how financial markets have behaved since May 1. In the past week, investors around the world responded negatively to what have been, by any standards, extremely favorable economic figures from the United States, Britain and even Europe.

Why the Russian sanctions don’t work

Anatole Kaletsky
May 1, 2014 20:53 UTC

putin!!

Why did the U.S. and European sanctions against Russia earlier this week trigger a rebound in the ruble and the Moscow stock market?

To understand this paradox it is worth recalling Yes Minister, the British TV comedy about a blundering politician who stumbles from crisis to crisis with the same justification for every panic response: “Something must be done. This is something –– therefore it must be done.”

The problem with this syllogism is that doing something may be worse than doing nothing — and the Western decision to rely on economic sanctions in the Ukraine crisis is a case in point.

Abe’s disturbing lack of focus

Anatole Kaletsky
Apr 24, 2014 21:52 UTC

President Barack Obama’s trip to Asia this week has focused mostly on Japan’s territorial disputes with China. On this issue, Obama seems to be repeating the same mistakes he made in Ukraine.

By creating false expectations of U.S. support for the Japanese position, the president is encouraging Japan to escalate its belligerent rhetoric. That, in turn, makes Chinese military action to seize the disputed islands more likely. Everyone knows that there is no chance of the United States going to war with China to defend Japan’s claim to four uninhabited lumps of rock.

Luckily, a military confrontation in the East China Sea remains highly unlikely because the Beijing government’s top priority is economic and financial reform.  Unfortunately, this seems less true of Japan.

Time to stop following defunct economic policies

Anatole Kaletsky
Apr 19, 2014 17:59 UTC

Can economists contribute anything useful to our understanding of politics, business and finance in the real world?

I raise this question having spent last weekend in Toronto at the annual conference of the Institute for New Economic Thinking, a foundation created in 2009 in response to the failure of modern economics in the global financial crisis (whose board I currently chair). Unfortunately, the question raised above is as troubling today as it was in November 2008, when Britain’s Queen Elizabeth famously stunned the head of the London School of Economics by asking faux naively, “But why did nobody foresee this [economic collapse]?”

As John Maynard Keynes observed in 1936, when he challenged the economic orthodoxies that were aggravating the Great Depression: “The ideas of economists, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.”

Behind Wall Street’s anxiety

Anatole Kaletsky
Apr 10, 2014 20:49 UTC

The recent economic news has been about as investor-friendly as anyone could imagine.

It started with last week’s strong U.S. employment figures; continued through Tuesday’s reassuring International Monetary Fund forecasts, which put the probability of avoiding a global recession this year to 99.9 percent, and culminated in dovish Federal Reserve minutes, which soothed concerns about an earlier than expected  increase in U.S. interest rates.

Considering all this good news, investors could justifiably feel surprised — even shocked — by Wall Street’s sharp falls this week. By Thursday afternoon, the Standard & Poor’s 500 had given back its entire gain for the year, and the Nasdaq 100 gauge of leading technology stocks had suffered its biggest setback since 2011. Many market analysts interpreted the negative reaction to good news as a classic sign of a market top, warning that the uninterrupted rise in share prices that began more than five years ago is overdue for a sharp reversal.

Forget the drama: A solution for Crimea

Anatole Kaletsky
Mar 28, 2014 03:29 UTC

President Vladimir Putin has disastrously miscalculated and Russia now faces deeper isolation, tougher sanctions and greater economic hardship than at any time since the Cold War. So declared President Obama after the NATO summit in Brussels.

European leaders have sounded even tougher than Obama, though less specific. Some whose countries lie far from Russia — for example, British Prime Minister David Cameron — have whipped themselves into a fury reminiscent of King Lear: “I will do such things — what they are, yet I know not, but they shall be the terrors of the earth.”

For more specificity we must turn to pundits. Geopolitical experts have predicted global anarchy because of the violation of postwar borders; economists have warned of crippling trade wars as European financial sanctions collide with Russian energy counter-measures, and eminent financial analysts have argued that investors and businesses are dangerously under-pricing enormous geopolitical risks.

Osborne: Stealth convert to ‘Keynesian Thatcherism’

Anatole Kaletsky
Mar 20, 2014 18:46 UTC

Britain’s government budget released this week is not a statement of economic policy. It is a program for winning next year’s general election.

In this sense, Chancellor of the Exchequer George Osborne’s speech was a natural development from the 2013 Budget, which launched Britain’s current economic recovery. I was one of the few analysts to perceive the remarkable transformation of the British economy that immediately resulted from last year’s budget because what Osborne did was deliberately obscured by what he said.

Osborne’s mantra last year was “you can’t cure debt with more debt.” Yet he did precisely that with his audacious plan to provide $198 billion (£120 billion) in government guarantees for additional mortgage borrowing.

Janet Yellen’s moment

Anatole Kaletsky
Mar 18, 2014 15:37 UTC

When Janet Yellen chairs her first meeting of the Federal Open Market Committee Tuesday and Wednesday, she will be presented with a once-in-a-generation opportunity that even her predecessors in the world’s most powerful economic position have rarely enjoyed.

Not only can Yellen alter the guidance on interest rates with which the FOMC has been steering global financial markets. Beyond that she could do something far more profound and exciting: transform an entire generation’s way of thinking about economics, market forces and the role of government in achieving and maintaining prosperity.

To start with the obvious, Yellen will almost certainly change or simply abolish the unemployment “threshold” of 6.5 percent announced early last year as a reference point for the FOMC to start considering the possibility of higher interest rates — perhaps setting a threshold of 5 percent or so. More radically, she could supplement the objective of lower unemployment with a range of other indicators that will need to improve before the Federal Reserve even considers any monetary tightening: for example, accelerating gross domestic product growth; strengthening productivity trends and eliminating the excess capacity in many industries that is now discouraging investment, hiring and productivity growth, as well as holding down corporate pricing power.

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