Stark, the Suissie and the Yen

Today’s post has two parts: Jurgen Stark’s resignation Jurgen Stark officially resigned from the ECB for personal reasons. Stark had been a critic of ECB bond purchases from the troubled states of Greece, Ireland, Spain and Italy. His resignation on Friday prompted rumours that this could presage an imminent Greek default with financial markets falling […]

EU Market Turmoil Strengthens Peripheral Credits

Ironically, the market turmoil in the EU peripheral bond markets this week will have the effect of forcing Europe’s hand to speed up implementation of the 21 July bailout accord. While bond markets are falling to ‘crazied distressed levels’ (six month maturity Greek bonds now yield over 100% annualised), Central Bankers and Finance Ministers can […]

Tobin’s Trading Tax Raises Volatility!

Every financial crisis brings forth calls for a tax on financial transactions. Sarkozy and Merkel are backing the current push. The rationale for this is based on James Tobin’s argument that trading leads to volatility – therefore, a tax on trading should reduce turnover and in turn reduce volatility… Wrong! The counter to this argument […]

Presidents Hu and Sarkozy Take Tea

The gravity of the moment was no doubt lost on French President Sarkozy last Thursday when he was summoned to ‘stopover’ in Bejing to take tea with President Hu on his way to New Caledonia. China has close to USD 800B invested in European Government bonds, which effectively makes President Hu Europe’s private banker. Hu […]

S&P’s CEO is the First to Go … ‘Letter-Ratings’ Should Be Next

The war declared by the US and EU governments on the ratings agencies has drawn blood. Standard &Poor’s CEO, Dewen Sharma, was yesterday replaced and the business placed on a ‘strategic review’. This follows an 11% drop in the value of the parent company McGraw Hill since S&P downgraded the US Treasuries’ credit rating. The […]

Can Bernanke Commit for Two Years?

Charlie Plosser, the President of the Philly Fed, was my thesis adviser. He is a well-respected, thoughtful professor who does not seek attention. Imagine my surprise when he openly criticises Bernanke’s latest experiment announcing that the Fed will keep rates at zero for two years! But Charlie is right…his argument is that the US is […]

Bernanke Cements the ‘Carry Trade’

When the dust settles from the recent market volatility, the long-lasting effect of the US Federal Reserve’s decision to commit to zero-rates until mid-2013 will be the dominance of carry. One of the risks of the ‘carry trade’ is when the short leg borrowing cost suddenly jumps. The Fed’s commitment to hold cash rates at […]

A Generous Tip for the Corn Delivery Man

The US invented the pizza delivery service. If you are too lazy to go out and collect a pizza, all you need to do is dial the pizza shop and a willing delivery man will satisfy your hunger quickly for a generous tip. The popular press has been focused on how the US can cut […]

An Effective Buyback and Bondswap Strategy

The EU has given the EFSF power to both swap existing Greek bonds for new 30 year bonds as well as to buyback Greek bonds in the secondary market. These powers are complimentary and a smart debt manager may well be able to reduce the stock of Greek debt by more than expected under the […]

The Great Greek Summit: A Retrospective

Clause 15 of the EU’s communique extending the terms of the Greek bailout provides a clue as to the real reason for the Summit. It reads “15. We agree that reliance on external credit ratings in the EU regulatory framework should be reduced…and we look forward to the Commission proposals on credit rating agencies.” Oh […]