It is still no easier to invest, but the arrival of RMB bonds has implications for the structure of currency reserves. Even UNCTAD says one reserve currency is not enough.

This is not an easy time for investors to find acceptable returns. Maybe this is one of those rare times when cash is the best means of protecting capital.

Bond Outlook [by bridport & cie, August 19th 2009]

With a US economy “pumped up” with an unsustainable stimulus package, what happens when the stimulus is withdrawn? See our alternatives and be grateful for China’s growing domestic consumption.

For a few months we were more optimistic than financial markets. Now, however, we have take a tack different from theirs and introduce a large dose of scepticism.

Much cash chasing financial assets may have led to disconnect between positive financial markets and a negative underlying economy. And is China’s recovery sustainable (infrastructure building versus consumer demand)?

Talk of an exit strategy seems premature when the whole process of rebalancing, led as it is by China resurgence, will take so long, and the US fundamentals out right.

Is this decoupling that we behold? An L-shaped recession for the USA and something approaching a V for the rest of the world may be in the making.

A positive side in the shift in economic power from West to emerging Asia: growing consumption in China inter alia looks like pulling the world economy out of recession.

Moving from overpriced government bonds to quality corporates, our recommendation last October, is now commonplace. The Madoff scandal has very negative implications for New York and for hedge funds.

If the savings rate has moved from -2% to +6% and industrial capacity usage has dropped to 65%, can the official drop of 3% in GDP be correct?

Moving from overpriced government bonds to quality corporates, our recommendation last October, is now commonplace. The Madoff scandal has very negative implications for New York and for hedge funds.

Much is going as we have supposed in recent weeks, but the great unknown is the timing of the inevitable switch from a deflationary environment to an inflationary one.

Merkel is speaking out where others keep silence: just are the long-term implications of the hyper-loose monetary policies for inflation and taxation? A grim choice: inflation or higher taxes.

Markets for corporate bonds in USD and in EUR are going different ways. We examine possible macro-economic implications, as well as the inflation risk generated by such heavy government borrowing.

Fixed-income investors appear to have lost their powers of discrimination as to what is a good versus a bad corporate bond, and lead managers are certainly taking advantage of that!

Fortunately Ben Bernanke has a plan to dampen inflation once the recession ends in the sense of GDP stops falling. We attempt to describe it and its implications.

If the stimuli work, it will be inflation, if not deflation. Not a nice choice and a daunting, if not impossible task for central bankers to navigate between them.

The same facts today are being interpreted in opposing directions; the usual “optimism vs. pessimism” is more extreme than ever. Today we define our own optimism and its inherent caution.

While we urge caution about recovery signaled by the stock market rally, we are quite optimistic about the operations of financial markets, especially for fixed-income instruments and credit in general.

Macroeconomics has led us a view that this recession is L-shaped. A parallel socio-political argument that the USA is undergoing a massive change in outlook points to the same conclusion.

The G20 look a divided group, but at least they are coalescing on issues of expanded regulation. Evolution nor revolution -- the lesson of Sarbanes-Oxley has not been lost!

There may be no alternative to printing dollars and buying toxic assets, but beware future inflation and further dollar weakness. Europe is taking a different route focusing on inflation.

Optimism after Bernanke’s speech and higher housing starts is probably overdone. The banks’ problems are not yet fixed and underlying causes of the recession will take years to clear.

Bond markets, both primary and secondary, are taking a further step towards fulfilling role of credit suppliers as banks abdicate this task. The “L-bend” should be in autumn, then stagnation.

While hope of a “bend in the L” for summer looks forlorn, we still see chinks of light in darkness: China\s stimulus, corporate bond issues and the US anti-foreclosure programme.

When the sense of outrage has calmed down, the entire risk-encouraging bankers’ bonus system will require a second look. Prudence has to be reclaimed by the banking industry.

In a sense the bank lending market is handing over to the corporate bond market, which offers opportunities alongside many dangers. Select bonds very carefully!

To encourage bank lending in the USA, the new Administration is following a stealth policy of moving bad assets to the Fed and good assets to the banks.

One month into 2009 and the world seems to have reached a fork in the road: either some positive fruits of the many rescue packages will start to appear, or the recession will really worsen and turn into a depression.