MacroScope

Talk is cheaper

The Federal Reserve is hinting that if it should come to further monetary easing to stimulate growth, it might prefer to talk the talk rather than walk the walk.

Fed Chairman Ben Bernanke said last week the central bank is “ready to respond” if the recovery stalls. While such a move isn’t imminent, he made clear that even with interest rates near zero, the Fed has plenty of options to spur growth if it needs to. When Bernanke in August 2010 spelled out alternative policy measures before launching the Fed’s second round of quantitative easing — $600 billion worth of Treasuries purchases — he listed bond buying first.

But in testimony to Congress last week, communications steps topped the list:

One option would be to provide more explicit guidance about the period over which the federal funds rate and the balance sheet would remain at their current levels.

In his press conference after the Fed’s June meeting, Bernanke offered several other communications menu items, saying the Fed could give guidance on how long it plans to keep buying securities to hold its balance sheet at its current expanded level, or give a fixed date for how long it plans to keep interest rates exceptionally low.

Is Bernanke’s re-ordering of Fed policy tools evidence of preference?

“This may be over-analysis,” wrote J.P.Morgan economist Michael Feroli, who nevertheless believes the Fed will lean toward communications as its next method to loosen monetary policy further should conditions warrant.

Give me liberty and give me cash!

Come back Mr Fukuyama, all is forgiven.

In his 1992 book “The End of History and the Last Man”, American political scientist Francis Fukuyama famously argued that all states were moving inexorably towards liberal democracy. His thesis that democracy is the pinnacle of political evolution has since been challenged by the violent eruption of radical Islam as well as the economic success of authoritarian countries such as China and Russia.

Now a study by Russian investment bank Renaissance Capital into the link between economic wealth and democracy seems to back Fukuyama.

Looking at 150 countries and over 60 years of history, RenCap found that countries are likely to become more democratic as they enjoyed rising levels of income with democracy virtually ‘immortal’ in countries with a GDP per capita above $10,000.

The iPod – the iCon of Chinese capitalism

Walking past Apple’s sleek shop along London’s Regent Street on Sunday, my wife asked me what I wanted for Father’s Day.

“An iPad?” I ventured, half-jokingly.

“Are you sure you want one? Don’t you care how they’re made?” came her disapproving reply.

She was, of course, referring to the rash of suicides among Chinese workers at Foxconn, the Taiwanese manufacturer of Apple’s much desired iPads and iPhones.

Building BRICs in Africa

Some eye-catching numbers from Standard Bank out today on the influence of BRICs countries — Brazil, Russia, India and China — on Africa.

First off, the bank says the global recession and its recovery have been nourishing these so-called South-South ties. But it is all now ready to take off. The bank estimates:

– By 2015, BRIC-Africa trade will have incresed threefold, to $530 billion from $150 billion this year.

German growth – When a slowdown isn’t slow

Germany’s growth rate slowed in the third quarter but as the accompanying graphic shows, it remained well above its long-term average.

Coming in at 0.7 percent,  the July-September number look very poor compared with the 2.3 percent growth rate racked up in the second quarter. But that huge number was the largest quarterly growth by far since at least the first year after reunification.

Putting that aside,  the 0.7 percent Q3 number was more that twice the average quarterly growth rate since 1991 and about twice the average third-quarter growth.

The IMF to turn on the rich

The latest International Monetary Fund meeting ended with emerging market powers getting a pledge from the organisation for stronger and “more even-handed” scrutiny of what is going on in large advanced economies.

As Reuters correspondents Lesley Wroughton and Emily Kaiser report here, the decision is a response to long-running frustrations among emerging economies, which reckon the Fund has  not been tough enough on its biggest shareholders, led by the United States.

The move reflects a number of things. First, it shows the growing clout of emerging economies within international institutions. The G-20, for example, is arguably now more influential than the old , richer G7. Secondly, it graphically underlines the current world-turned-upside-down state of the global economy, in which profligate rich economies are struggling to keep above water while supposedly poorer and less-developed ones enjoy solid growth and relatively stable finances. This graph makes the point:

Who will win this year’s Nobel Prize for Economics?

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And the Nobel laureate for economics in 2010 is?

Thomson Reuters expert David Pendlebury might have an idea. At least one of the picks from his annual predictions of winners (economics, chemisty, and so on) has won a Nobel prize over the years. Here is his short-list for economics this year.

* Alberto Alesina of Harvard University in Massachusetts for research on the relationship between politics and macroeconomics, especially politico-economic cycles.

* Nobuhiro Kiyotaki of Princeton University and John Moore of Britain’s University of Edinburgh and the London School of Economics for their Kiyotaki-Moore model, which describes how small shocks to an economy may lead to a cycle of lower output. It described Japan’s real-estate crisis in the 1990s and could describe some of the causes of the recent U.S. recession.

Investment week: Punch drunk and hard to startle

This week’s rehashing of European banking concerns – related variously to the Basel III impact on German banks, the ongoing morass re Anglo Irish Bank or any other scare story you want to exhume — provided the latest excuse for a global markets wobble as September kicked off. Yet, with some justified head-scratching over what really was new to the world this week as opposed to last week, price moves showed little conviction. Most losses were quickly recouped and decibel level of the commentariat, still frantically competing to warn you of the next disaster, toned down.

boxerThe world’s major sovereigns and banks have big financial problems, no doubt, and Europe more than its fair share. The rescues of the Spring did not provide a silver bullet and genuine repair will likely take a painfully-long time. But we’ve also had a lot of time to adequately discount these risks and the marketplace at large is already positioned extremely cautiously. That’s why the idea of sudden, blind panic on these long-running sagas seems just a little OTT – especially against a relatively stable, if bruised, economic backdrop. The bigger issue many investors are grappling with is the growing difficulty in making money in a hyper-cautious, low-growth environment. Ask Stanley Druckenmiller. If he threw in the towel because money-making conditions are just lousy, then you can be sure others see the same. Anecdotally at least, pressurised hedge funds – who faced rising redemptions through the summer – are ultra-cautious about open positions and seem quick to cut and run on even the slightest gain, long or short. (A bit like continually shouting ‘bank!’ on reaching £100 pounds on The Weakest Link!) Big institutional funds, meantime, are sufficiently uncertain about the market and economic direction that many are already keen to lock down for the remainder of the year and are hugging benchmarks to preserve whatever capital they have without resorting to zero-yielding cash or barely-more-attractive TBonds. U.S. midterms in November only add the caution. In short, it will take a pretty major positive or negative surprise to truly set these markets alight and there is every chance we won’t get a decisive one for some time.  We already have historically high vol and caution – but relative steady, unspectacular conditions for all that. The smart money may simply be tempted to buy or sell any hysterical extremes. Is may even be possible that some are tempted to foster a long-absent patience gene?

As to next week? There’s welter of new economic data to maybe add some flavour. The biggest potential movers are August China production and investment stats (now, oddly, being released Saturday rather than Monday) and then US retail sales, Philly Fed and German ZEW indices later in the week. On the issue du jour re European banks/sovereigns, an informal EU summit on Thursday provides the main set-piece – but BIS central bankers meeting in Basel this weekend and Spanish and Italian debt auctions next week may add their own spice.

The econ blogosphere speaks

The economic blogosphere has spoken — and it is not too happy with what it sees. The Kauffman Foundation has just published a survey of 68 economic (but not necessarily economist) bloggers showing that they are pretty gloomy about the U.S. economy’s progress.

Feedback from the likes of  Oregon University’s Mark Thoma and UC San Diego’s James Hamilton suggests the U.S. is at some kind of tipping point with a good number expecting it to fall rather than maintain balance:

68 percent (said) that conditions are mixed, and the rest split three to one toward weakness rather than growth. For an economy in which growth is the norm, 47 percent of respondents think that the U.S. economy is worse than official statistics indicate, and only 5 percent believe it is better.

from Jeremy Gaunt:

Micro versus macro

There is little doubt that the latest U.S. earnings season has been a good one for long-equity  investors. Thomson Reuters Proprietary Research calculates that with 67 percent of S&P 500 companies having reported, EPS growth -- both actual and that still forecast for those who have not filed yet -- has come in at 36 percent.

Furthermore, a large majority of the reports have surprised on the upside, as they like to say on Wall Street.  Some 75 percent of  reports have been better than expected.  Not surprisingly, the S&P index gained around 6.9 percent in July and is up another 1.7 percent in the first two trading days of August.

But given what looks like at least a faltering U.S. economy with little consumer confidence, some analysts  have begun asking what there is to get excited about. Philipp Baertschi, chief strategist at wealth manager Bank Sarasin, for example, calls it a case of micro bulls versus macro bears and warns that it won't last.