Opinion

Anatole Kaletsky

Yellen’s remarkably unremarkable news conference – and why it’s a good thing

Anatole Kaletsky
Jun 19, 2014 20:03 UTC

Yellen holds a news conference following two-day Federal Open Market Committee meeting at the Federal Reserve in WashingtonJohn Maynard Keynes famously said that his highest ambition was to make economic policy as boring as dentistry. In this respect, as in so many others, Federal Reserve Chair Janet Yellen is proving to be a loyal Keynesian.

Yellen’s second news conference as Fed chair conveyed no new information about the timing of future interest rate moves. She gave no hints about an “exit strategy” for the Fed to return the $3 trillion of bonds it has acquired to the private sector. She told us nothing about the Fed’s expectations on inflation, employment and economic growth — not even about the board’s views on financial volatility, regulation, asset prices or bank credit policies.

Yellen refused even to repeat, or repeal, her earlier answer to a question about the meaning of the “considerable period” she expected between the end of tapering and the first rate hike. At her first news conference, Yellen responded to a similar question by blurting out “six months.” This caused an eruption of volatility in financial markets — that lasted about five minutes.

This time Yellen decided to do no such favors for the high-frequency traders on Wall Street. Instead she gave the same frustrating answer to every question about the Fed’s future plans: “It depends.”

Traders work at the kiosk that trades Time Warner Cable on the floor of the New York Stock ExchangeTo quote one of many examples: “There is no mechanical formula whatsoever for what a considerable time means. It depends on how the economy progresses. We will be looking at the progress we make in achieving our labor market objective and inflation objective.”

Should Brazilians cheer if they lose the World Cup?

Anatole Kaletsky
Jun 13, 2014 19:22 UTC

Brazil's President Rousseff attends a meeting of the Brazilian Forum on Climate Change in Brasilia

As the World Cup kicks off in Sao Paolo this week, the home team is the runaway favorite, with a 45 percent chance of winning the tournament, according to Nate Silver on FiveThirtyEight and 48.5 percent probability according to the statistical boffins at Goldman Sachs. But apart from the bookmakers — who stand to lose a fortune if Brazil wins, since they are offering odds of around 3 to 1, instead of the 1 to 1 suggested by Silver’s and Goldman’s calculations — another, more surprising, group is secretly rooting against the favorite: Brazil’s own financial and business community, along with much of the country’s middle class.

That, at least, was my strong impression after two weeks visiting companies and financial institutions in Brazil. This unusual reversal of national spirit does not represent a breakdown of patriotism. Rather the opposite.

Brazil’s next presidential election is in October, and virtually everyone in business and finance believes that President Dilma Rousseff, the incumbent, must be defeated to save the economy. Whenever a new opinion poll shows a narrowing lead for Dilma (as Brazilians invariably call her), share prices jump. Yet still she remains well ahead of both her opponents.

Now may not be the time to buy bonds

Anatole Kaletsky
Jun 6, 2014 18:35 UTC

anatole -- top

Why are interest rates so low? And how long will they stay that way?

Now that the European Central Bank has passed another historic milestone by imposing negative interest rates on a major part of the world economy, there is one explanation of the unprecedented collapse of interest that everyone can agree on. Central banks can set money market interest rates as low or as high as they please just by giving commercial banks whatever amount of excess credit is needed to keep these rates at the chosen level.

Since early 2009, central bankers all over the world have decided, rightly or wrongly, that interest rates should be lower than ever before in history. Moreover, these policymakers made it clear that they will continue to squeeze interest rates down to near-zero, or even negative, levels until next year and perhaps beyond.

But this obvious answer to the interest rate conundrum only begs a more interesting question: What accounts for the rock-bottom levels not only of the overnight interest rates that central banks set directly, but also the long-term rates that depend on the willingness of pension funds, insurers and private investors to tie up their savings for 10 years or more in government bonds?

Despite election results, reason still rules Europe

Anatole Kaletsky
May 30, 2014 18:09 UTC

anatole -- french student

When can a vote of 25 percent be described as a “stunning victory” or even a “political earthquake”?

According to the European establishment, it’s when these votes go to a rabble of odd-ball extremists, ranging from overt racists and even disciples of Adolf Hitler to unreconstructed Stalinists and comically naïve anarchists.

However, the most alarming symptom of political breakdown revealed by the European parliament election is mainstream politician’s hysterical reaction to a perfectly predictable — and justifiable — upsurge of populist anger after the euro crisis.

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.

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.”

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