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from Breakingviews:
Book review: Nazis, secrecy and central banking
By Dominic Elliott
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
“The shadowy history of the secret bank that runs the world”, the subtitle of Adam LeBor’s new book, may sound sensationalist. But “Tower of Basel” is an absorbing and thorough examination of one of the world’s most important yet opaque institutions: the Bank for International Settlements (BIS).
The book’s publication is timely: revelations of Big Brother-style snooping by the U.S. government and the increasing influence of central bankers are troubling examples of what appears to be a power grab by the ruling elite. “Tower of Basel” shows how concentrated and opaque that control is in finance.
The BIS is often considered geek-central. It is the home of the immensely complicated Basel III rules for bank capital. Its reputation among financial types was enhanced by its regular warnings about excess leverage - starting well before the 2008 crisis. The BIS was chosen as the natural host for the Financial Stability Board, the group of global leaders that has coordinated the response to the crisis.
from Anatole Kaletsky:
When illogical policy seems to work
It’s cynical, manipulative and hypocritical – and it looks like it is going to work. How often do you hear a sentence like this, to describe a government initiative or economic policy? Not often enough.
The media and a surprisingly high proportion of business leaders, financiers and economic analysts seem to believe that policies which are dishonest, intellectually inconsistent or obviously self-interested in their motivation are ipso facto doomed to fail or to damage the public interest. But this is manifestly untrue. The effectiveness of public policies and their ultimate desirability is in practice judged not by their motivations, but by their results.
from Breakingviews:
Markets suffer too much central bank attention
By Edward Hadas
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
When a measure becomes a target, it ceases to be a good measure. That restatement of Goodhart’s Law is almost perfectly appropriate to today’s financial markets. Bonds, stocks, currencies and commodities have all become treacherous terrain for investors.
from Breakingviews:
Deflation flu could leave Asia feeling very sick
By Andy Mukherjee
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Deflation is entering Asia through the back door. Producer prices are sliding across the region - falling 8.5 percent even in the Philippines, where GDP grew 7.8 percent in the first quarter. Cheaper commodities are partly to blame, but the main culprit is sluggish demand from the United States. If companies can’t make up the difference, they may struggle to repay growing debts.
from Breakingviews:
German court pragmatism tested by ECB bond buying
By Olaf Storbeck
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The German constitutional court’s hearing on the European Central Bank’s bond-buying programme will be another opportunity to show how fragile the basic agreement at the heart of the monetary union really is. The judges in Karlsruhe are being asked to say whether Berlin is at risk of agreeing to an ECB policy that violates the conditions they had previously set on the monetary union. Should they make the programme known as outright monetary transactions (OMT) verboten, the euro crisis might be reignited. That looks unlikely, although a negative verdict cannot be ruled out.
from Breakingviews:
Carney in doesn’t mean pound down as QE heads out
By Ian Campbell
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Is Mark Carney really Mr. Easy Money, about to devalue the pound in a bid for growth? The incoming head of the Bank of England has spoken of the need to attain “escape velocity”. But the logical deduction - that he will open the monetary floodgates and send the pound down to $1.40 - ignores the latest economic news and the new international mood on monetary policy.
from Global Investing:
Weekly Radar: A ‘sudden stop’ in emerging markets?
Turkey's lira, South Africa's rand and South Korea's won have all lunged, local currency debt yields have suddenly surged, there's an intense investor focus on domestic political risks again and governments like Brazil who were taxing what they feared were excessive foreign investment over the past couple of years have U-turned as those flows evaporate.
What some have feared for many months may well be materializing – a ‘sudden stop’ in financing flows to emerging markets as the makings of a perfect storm gathers. With the Fed mulling some reduction in the amount of dollars it’s pumping into the world, the prospect of a rare and protracted rise in the dollar and U.S. Treasury yields potentially changes entire EM investment metrics for U.S. funds (who make up almost half of the world’s private institutional investors) and from markets which have willingly or not been some of the biggest beneficiaries of QE in recent years but also to where where , by some estimates, nearly $8 trillion of FDI and portfolio flows have flowed over the past decade. It doesn’t even have to mean a reversal of capital already in emerging markets, but even a sudden stop in new flows there could seriously undermine the currency and debt markets of countries heavily dependent on rolling foreign financing - those with large current account gaps to finance. As emerging and global economic growth has eased and return on equity sinks, emerging equity markets have already underperformed for three years now. But the biggest wave of recent investment in EM had been into its bond markets, most recently to higher-yielding local-currency debt markets. And it’s these flows that could dry up rather quickly and shockingly, with all the attendant pressure on currency rates and vice versa. For context, a record of more than $410 billion new sovereign and corporate bonds from emerging economies were sold last year alone, according to JPMorgan, and Morgan Stanley estimates show emerging companies alone have sold some $130 billion worth of new debt so far this year – up 30 percent on last year and more than twice the same period in 2011.
Already we’re seeing big hits to big current account deficit countries Turkey and South Africa in this region and, as is so often the case in emerging markets, the withdrawal of capital leads to an intense focus on domestic and political risks. These are two of the five biggest destination for bond flows over the past four years, a list –measured on flows as share of GDP – also includes Poland and Czech Republic. Mexico is top of the list, but many see its geographic and financial proximity to the US insulating it.
from Global Investing:
Guarding against the inflation dog in emerging markets
The dog that didn't bark was how the IMF described inflation. But might the fall in emerging market currencies reverse the current picture of largely benign inflation?
Nick Shearn, a portfolio manager at BlueBay Asset Management, sees the rise in inflation as not an if but a when, which makes inflation-linked bonds (linkers in common parlance) a good idea. These would hedge not only against EM but also G7 inflation -- he calculates the correlation between the two at around 0.8 percent. He says linkers outperform as inflation uncertainty increases, hence:
from MacroScope:
Mystery of the missing Fed regulator
It's one of those touchy subjects that Federal Reserve officials don't really want to talk about, thank you very much.
For nearly three years now, no one has been tapped to serve as the U.S. central bank's Vice Chairman for Supervision. According to the landmark 2010 Dodd-Frank bill, which created the position to show that the Fed means business as it cracks down on Wall Street, President Obama was to appoint a Vice Chair to spearhead bank oversight and to regularly answer to Congress as Chairman Ben Bernanke's right hand man.
from Breakingviews:
Japan e-book: Abe’s Economic Experiment
By Peter Thal Larsen
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
Japan’s prime minister has electrified investors with his three-pronged strategy to shock the country out of its economic malaise. Abenomics has profound implications not just for Japan, but for the rest of the world too. Our new book examines the economic phenomenon of the year.
