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 […]

The Greek Secondary Market Shuts Down: Arbitrage Opportunities Abound

Not since the Lehman default has there been such dislocation in the secondary markets for bonds. Last week, turnover in the GGB market ground to a halt and the recent price falls reflect an absence of liquidity. Total reported transactions on Thursday, for instance, were only EUR 6M versus something like EUR 300M on a […]

Europe’s Bond Crisis: Why a Secondary Market Buyback Makes Sense

There is one thing that the European Finance Ministers meeting in Luxembourg know that the rest of the market does not: whether they will let Greece default. This is valuable information that they can and should take advantage of. My guess is that the debate taking place is all about how much a bailout will […]