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LATEST ARTICLES
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Two elections in Europe in a month will certainly ruffle the feathers of financial markets.
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The populist surge is being restrained for now, but several factors are likely to drive up sovereign bond yields in Europe.
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The dollar’s multi-year bull run might last a couple more months, but its fundamental underpinnings are weakening.
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With the sizeable majority voting no to political reform in the Italian referendum, the anger vote has claimed its next victim – Italy. The dominoes of Brexit, Trump and now Italy continue to fall.
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The rise of populism in general, and Trumpism in particular, brings severe geopolitical and economic risks and could have a disastrous impact on growth and productivity.
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Another European banking crunch is on the horizon thanks to legacy problems that have not been fixed.
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The European Project faces a much greater danger from the rise of populism than from the sovereign debt crisis.
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The advantages of helicopter money are dubious and they come with large risks attached.
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The failed coup in Turkey shows that we are in one of those periods in history when politics matter as much or more than economics for financial markets.
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US growth should start a strong rebound this year, increasing the chances of rate rises.
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Central bank initiatives are carrying less and less influence and their diminishing returns increasingly point to a toxic race to the bottom.
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When the numbers look bleak and central banks are out of tools, cash and gold make sense.
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Weaknesses in Japan and Asia will mean a flight to quality.
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It is going to be a bumpy ride for Asia and other commodity-producing economies this year.
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The euro is on course for parity with the dollar in 2016.
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Britain’s renegotiation of its relationship with the EU could be a good thing for Europe too.
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The country is an indicator of the European Union’s future.
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The US Federal Reserve has harmed its credibility by postponing a rate hike.
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Renzi’s reforms and favourable winds seem to be working some magic on the country’s numbers.
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Structural problems and over-leverage mean the focus will switch to Asia for the next global currency moves.
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Investors ignore valuation at their peril – a period of lacklustre returns looms. The Fed’s move on interest rates is key.
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The newly elected Tory party must wrestle with an invigorated SNP and its old bête noire, the EU. The proposed in/out referendum will cast a long shadow over the UK.
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The eurozone recovery looks increasingly secure but the low growth rate is still a big cause for concern.
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At times the ECB seems to lurk so far behind the curve that it appears to be using some sort of random monetary-policy generator.
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Political pressures and lack of growth have put the European project under threat. Reform is urgently needed to set Europe back on course.
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The eurozone’s economic fortunes should start to recover with the arrival, at last, of full-blown quantitative easing. As the world’s leading currencies are set for a race to the bottom, it could be time to buy gold.
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Time is running out for Italy to make the reforms it needs to produce a self-sustaining recovery.
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The US looks to benefit from a changing energy landscape, at the expense of Russia and the Middle East, while Europe will be happier to be less reliant on those producers.
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The financial sector remains central to the eurozone’s economic woes. Promises of ECB support only prolong the problem.
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The ECB president is striving to stave off deflation in the eurozone yet Germany will not countenance full quantitative easing. Something must give.
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The big happening in the next 12 months will be the repricing of global capital. It will impact the price of every currency and asset. It’s a complex and exciting story.
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Key energy suppliers are increasingly politically unstable and Europe faces a rise in prices, even though demand is falling.
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ECB president Mario Draghi has resisted using his quantitative easing bazooka up to now. However, with inflation expectations already moving lower, he will have to fire it before the year is out.
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There is no time to waste for intervention to overcome persistently low inflation in the eurozone.
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The ECB view that eurozone disinflation is slowly reversing is unconvincing. QE might be the only strategy left, although it is not risk free
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The crisis in Crimea should give the west pause for thought in its relations with eastern European states and with Russia.
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The EU elections are likely to deliver big gains for populist parties of the left and right, namely those opposed to the European project and/or further integration.
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A more optimistic picture of the eurozone economy is clouded by deflationary pressures, which are especially perilous in Greece. There is no easy fix, but a cheaper euro would help.
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US claims that Germany’s external surpluses are hindering global recovery are inaccurate and unjustified
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The debt crisis is not over. A renewed bout will spring from banks in the EU periphery.
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Germany will dig in its heels about structures that might put it in a minority in decision-making and might expose its taxpayers to unwanted bailouts.
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The Fed’s U-turn on tapering and the likely shakiness of any coalition Merkel builds in Germany both add uncertainty to investor sentiment.
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Despite recent positive GDP figures, there is still depressed consumer demand and tight credit in large parts of the single-currency area.
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Dovish forward guidance from the European Central Bank has been followed by a similar approach from the Bank of England.
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The immediate actions of key financial strategists have a direct impact on the markets. But what of the trends that are beyond these leaders’ control?
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There is just about enough global growth activity to sustain growth-dependent assets. But stagnating Europe remains the weak link that could disrupt peaceful progress.
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The Cyprus solution is inadequate as well as sending the wrong messages on depositors’ risks and free capital flows. Then there’s Slovenia... and Italy.
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In the ledger of economic recovery, reasons to be optimistic are neatly balanced by reasons to be pessimistic.
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The mini-deal reached to avert the US fiscal cliff offers no solution to excessive public borrowing, which has to be dealt with by the end of this month.
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Spain, Italy and Greece should not expect a happy new year – the eurozone’s bumpy ride is set to continue.
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The US, Japan and Europe will be too cold next year. Manufacturing from emerging economies might be too hot. The result, though, might be just right.
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Domestic political concerns continue to stall progress on solving the euro crisis. Fortunately, there are more propitious financial indicators elsewhere in the world.
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Financial markets should benefit from recent policy moves in the eurozone and the US, but the underlying economic picture remains uncertain and potentially grim.
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Eurozone moves to resolve the euro crisis are propitious for global markets. But an Israeli attack on Iran this autumn would undermine economic recovery.
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The pressure is on for the US to get its private and public sector debt down – through inaction.
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Spain cannot expect pan-EU economic reform measures to be introduced quickly enough to save itself from a troika programme.
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None of the policy responses, monetary or fiscal, addresses the real global sickness: debt.
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The end of QE support means that markets must face up to a repricing of assets on the basis of economic reality.
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Greece will be forced to default and face an exit from the eurozone. That’s when the issue of contagion will rear its head again.
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The strongest support for a bullish view of growth comes from US prospects. However, caution is warranted even here. Bearishness seems appropriate elsewhere...
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"Bankers are not going to repeat the errors of the past or buy 10-year bonds with three-year funding. Such a duration mismatch would ultimately be suicide"
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Europe’s leaders aren’t giving the currency what it needs: reform, fiscal discipline and international support.
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Unless crucial links in the chain of contagion are broken and sufficient resources are provided to cover all sovereign liabilities, the eurozone is doomed.
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The contagion of a euro debt crisis will not be restricted to Europe’s weaker states.
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GDP growth must be sufficient to outweigh possible deleterious effects of sovereign budget cuts and measures to increase revenues. It’s an impossible ask for Japan and an extremely tough one for the eurozone.
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In both the US and the eurozone there is a failure to recognize that the crisis is about solvency not liquidity.
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A lengthy, post-stimulus grind of deleveraging is the most likely model for the world economy in the immediate future. This heralds some years of balance-sheet restructuring.
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There are doubts that the peripheral countries have the will to cut and tax their way to stability. That leaves growth as the way to balance the books. Where will it come from?
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Portugal’s debt crisis is as severe as Greece’s but can be resolved, painfully. The big upcoming sovereign debt risk is not from the eurozone but from the US and Japan.
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Continuing political instability in North Africa and the Middle East, together with oil-supply constraints, will increase energy risks and therefore prices.
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Higher global inflation and lower growth – stagflation – is on the way. Deflation is much further down the road.
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Conditions for expanding the EU’s EFSF are set to be agreed by the end of the month. Even if only some of the Franco-German proposals are implemented, the euro will be greatly strengthened.
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Germany’s fragmenting political scene tends towards stasis on big decisions, with key voting groups settling for conservatism. It bodes ill for the country’s role in solving EU problems.
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If market confidence in the eurozone is to be restored, not just Greece and Ireland but also Portugal and Spain need the attention of the EU’s Financial Stability Facility.
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The Irish government has been forced to take drastic steps that will cause short-term suffering. But its approach is one that other countries might later regret not having adopted.
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The EU’s plans to tighten measures to prevent eurozone instability and discipline transgressors are admirable in theory. But implementation will be a tough task and is not in any case achievable until 2013.
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Renewed quantitative easing is not a sound answer to the threat of double-dip recession or deflation. A credit bubble cannot be cured by pumping in more credit.
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Market satisfaction with renewed US quantitative easing moves is as misguided as the Fed strategy itself. QE2’s perversions herald great pain farther down the road.
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Tough times lie ahead for the financially challenged parts of the eurozone. But the rapid rebound in other eurozone countries will sustain Europe’s Economic and Monetary Union, as will Germany’s determination to export fiscal rectitude.
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Markets have focused on the woes of the peripheral eurozone member states and their sovereign debt crisis but we should remember that public finances in the UK, the US and Japan are in an equally bad, if not worse, state.
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The EU’s single-currency system is under great stress but will not reach breaking point so long as Germany wants it to survive.
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Burgeoning sovereign debt is a threat to economic recovery, not a way to achieve it. It will crowd out borrowing for more productive purposes and will inevitably foster inflation and possibly defaults.
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Piling on public-sector leverage in an attempt to cure a recession that was itself caused by excessive private-sector leverage makes no sense. It might even create stagnation.
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There is no easy way out of the overleveraged situation many governments have got into. A sovereign debt crisis looms, and not just for the most profligate.
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Greece has a tough road ahead of it to restore economic health and credibility. But those who believe it will default, leave the eurozone or abandon the EU are living in a fantasy world.
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Germany’s fiscal discipline imperative, which perforce will be imposed on the whole eurozone, is the key to a more dynamic, less state-heavy EU economy.
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The financial markets rally cannot be maintained because there is no way we can go back to the bubble economy of the past that was gorged by excess leverage. Far from being unwound, this has been sustained by governments.
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The financial markets bounce is unsustainable. Demand will fall and corporate costs will rise as artificial stimulus is withdrawn and fiscal retrenchment kicks in. Expect an almighty splat as the markets drop.
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Gordon Brown’s government has no clear strategy for dealing with the budget deficit. Nor does its likely successor, the Conservatives led by David Cameron.
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The buoyant stock market is built on credit stimuli that cannot continue until there is a recovery in the real economy – and that is still way over the horizon.
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Increased government borrowing is an unsound way to stave off recession. It puts sustained economic growth in peril rather than promoting it.
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Big overseas holders of US dollar assets, with China at the forefront, will not be sold another pup. Instead of supporting wayward US financial policies they will increasingly diversify to other currencies.
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The authorities have run out of ways to deal with the debt overhang and to create new credit. The only palatable way out looks to be a period of generalized inflation
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There are limited IMF funds for ailing emerging economies, available only on stiff terms, and that means serious consequences for those that have lent to them.
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Germany’s commitment to the EU project will guarantee bailouts for weaker eurozone members. But it’s a different story for hard-pressed central and eastern European states and their banks.
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The eurozone’s advantages for both strong and weak members far outweigh any disadvantages that might incline countries to walk away.
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This year is not set to be one of economic recovery – the financial assets that are cheap are cheap for a very good reason, and it’s not a propitious one.
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The spread of the credit crisis to emerging countries will have more than just domestic repercussions.
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Governments worldwide have moved to recapitalize banks. But the amounts injected will only be sufficient to avert a great depression; they are not enough to sustain lending and avert a global recession.
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Short of a radical restructuring of the banking sector, the US government bailout will prompt a market rally. However the longer-term effects will be deleterious.
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The greenback revival, driven by ECB recognition that the eurozone is faltering, will be sustained by the narrowing of the US current account deficit, the fall in the oil price and the US pursuit of a soft monetary policy.
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There will be more rallies but the equity market trend is downward, and there’s a worrying backdrop of rising inflation mixed with declining growth.
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Underlying the headlines are distortions in the market that can be overcome by liberalization.
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Financial institutions’ woes are not at an end. Non-deposit institutions still have losses to book and the whole credit creation model is broken. So a quick and easy upturn from the credit crisis is not to be expected.
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Only suckers believe that the remedies applied to the credit crisis have cured the underlying sickness. There’s more painful adjustment to come, and it could last two to five years.
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More assets are yet to be hit in the credit crisis and, as leverage continues to fall out of play, liquidity will keep on drying up. Equity prices are bound to fall still further too.
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The effects of the sub-prime crisis are spreading and could cost 2.5% of world GDP. Emerging market economies will not be immune.
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The bad news: in 2008 a global recession is bound to set in. The scant good news: the oil price will fall back and the development of environment-friendly technology will fuel investment.
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Eastern Europe has borrowed cheaply this decade to fund a credit binge. Now, as the global credit crisis starts to bite, the region’s economies are becoming increasingly vulnerable.
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The big banks’ Mlec fund might well unblock the present credit log jam. But there’s no escaping the fact that global liquidity has contracted and capital is being repriced upwards.
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Global liquidity is set to keep contracting and inflation will keep on increasing despite a growth slowdown. There is a serious risk of global recession in 2008.
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The global economy may be strong, but that does not make it immune to cyclical liquidity contraction.
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Bond markets are still too sanguine about inflation prospects. But present global growth rates will inevitably drain liquidity from the financial system.
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The world economy is set to keep growing fast for the next few months. But this will take an inevitable toll on the cost of capital, which is already rising.
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Market mechanisms, not inflexible penal taxation, are the way to deal with global warming. And market approaches also open profitable channels for investors.
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The present run of stock market buoyancy cannot be sustained. And that’s not just because credit is set to contract – so, too, are corporate profits.
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The recent sell-off in global stock markets will not be a repeat of last May – a short correction leading to new highs. There is now more to worry about in the global economy and the liquidity cycle is at a turning point.
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Market expectations of interest rate stability fly in the face of growing signs of inflationary pressure and the likelihood of a move by the Federal Reserve.
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Nothing is more likely to cause instability than a long period of stability. And excessive growth of credit and liquidity is a clear warning sign of crashes to come, probably within the next year.
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Strong business confidence, healthy demand for German products and an increasing share of income going to capital belie fears that Germany’s growth rate is under threat.
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Continuing high levels of capital liquidity rest on flows from securitization and derivatives, and from dollar dominance in international trade. Neither source is immune to a violent adjustment.
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There are signs that liquidity-generated inflation is spreading from financial bubbles into the output economy.
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Eurozone countries are continuing to boost productivity vis-à-vis that in the US; consequently European equities are outperforming American ones.
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Inflation is set to feed into the US economy, with destructive effects. But the beginning of the process won’t be the consumer slowdown that so many expect.
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With the recent sell-off behind them, Japanese and eurozone equities look to be more attractive growth or defensive prospects than US stocks.
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Less liquidity in equity markets suggests that investment strategies harnessing volatility are appropriate.
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The ability of the US to run a high current account deficit rests on a widespread belief that inflation and the cost of capital will remain low. But the conditions that underpin the deficit and the dollar’s role as the principal source of global capital are unlikely to be sustained for long.
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Forget the stymied constitution, Parisian événements, electoral tangles and government overspending – eurozone corporates are doing just fine and consumers are picking up on the mood.
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The US housing boom is set to collapse, with adverse effects on domestic consumption. This, unlike the slowdowns in Australia and the UK, will have a marked effect on global growth.
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Conflict over oil and gas supplies is set to fuel tension between western Europe and Russia in coming years.
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A repricing of capital is coming soon. But advances in risk management suggest it will be a prolonged process, not a quick flip into deflation.
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Europe is in better shape than a cursory examination of its politicians might suggest.
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Japanese equities are at the start of a sustained bull market that in the next two years will take the Nikkei well above 20,000 from its current 14,000 level.
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China’s inefficient economy is under threat because its capital costs are set to rise, but it is as likely to falter because US consumerism hits the wall. And there are signs that American profligacy cannot be sustained much longer
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A punctured US property bubble is not far down the line as inflationary pressures mount. When it comes, as treasury yields inevitably move up, the US economy will slow sharply
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News of an election is already perking up the Germany economy. If a centre-right coalition wins, as seems likely, expect yet more improvement
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A neat theory has it that long-term interest rates are stubbornly low because of excess savings in Asia. But the Federal Reserve can't get off the hook that easily
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The US economy is in a fool's paradise – Europe and Japan are by no means doomed to lag behind it. But none of these rivals can afford to abandon free trade to cope with China's massive growth
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As the huge US and global debt bubbles burst under the weight of the cost of servicing, the US is certainly not the place for investors to be this year. Look instead to Europe, Japan, cash and gold
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Forecasts of a soft landing for the global economy are off the mark – disinflation is at an end and interest rates are on the rise. For safe havens investors should look to gold and the euro
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Americans are poor exporters. A falling dollar can't change that. What with globalization, low-cost rivals and the downplaying of the greenback, a collapse rather than an adjustment looks likely.
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The productivity gap between the US and Europe is not as wide as is commonly believed. And eurozone productivity is growing, with more of that gain accruing to investors than to workers.
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Inflation differentials between countries are returning and investment analysts will reinvent the technology for weighing them. First in the balance will be the US whose assets look set to weigh light against those of Europe and Japan
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Asian governments have been fighting a rearguard action to hold down their currencies. They have stopped external surpluses from fuelling domestic inflation. But they are at their limits.
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Current data suggest a gradual tailing off of the house price boom is likely in OECD countries. But there's still room for a sharp decline that could fuel recession and have a serious impact on overstretched banking systems and agency lenders.
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Japan got through deflation in its own sweet way and its recovery is also idiosyncratic. In the long run the yen will slide but for now conditions will favour foreign investors, holding up the currency.
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Deflation is on the way, summoning up a long and dreary financial winter. But it should be preceded by a burst of autumn sunshine
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Although many governments will keep pushing loose fiscal policies, capital repricing is inevitable ? probably led by the ECB. That lead should favour the euro and European bonds, at least for a while
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Is an oil disaster just around the corner? Barring political upheaval in the Middle East, which will not come right away, probably not. Rather, look toward benefits from falling oil prices by the year-end.