The New different risks we highlighted in the previous note remain the 2 key market drivers: G7 monetary policy normalization (especially the US), and China’s business cycle and reform/rebalancing efforts. Obviously there are other themes and risks, as the US business cycle and the pace of the incipient European recovery, or the accumulation of emerging read more

The nature of the key risk factors has changed in a significant way. The main risk factors that threatened markets over the last 2-3 years have faded / been resolved / disappeared. Those risk factors shared a crucial feature, that their different resolution scenarios could and were imagined with some detail, and that their time-profile read more

The Fed saved the world economy during 2009, but has clearly inflated liquidity excessively in the last 2 years, and monetary policy normalization is long over-due. However, yesterday’s surprise has some logic and its critics exaggerate its importance, in our view. Here are a few reasons why. First, the question of whether this decision is read more

Is the market over-reacting to every Fed official statement and subsequent clarification, or is the Fed behaving like a capricious teenager? Since the release of fed minutes on May 22nd that reflected a more emphatic debate about the reduction in the pace of asset purchases (i.e. tapering of LSAP), the market has had violent moves read more

Every time an event causes a significant market move, like the recent ‘tapering’ discussion has done to international markets, the difficult question to answer is whether it is a transitory of a more permanent phenomenon. If the discussion is mostly noise, without a relevant impact on fundamentals, then it is bound to pass and making read more

April has so far been very volatile, as a result of the struggle between fundamentals showing incipient signs of a deceleration that brings fears of a now frequent seasonal pattern, and central bank liquidity on the other hand. Investors have grown fearful of every short-term correction, and the time of the year brings back memories read more

The European Union is back making mistakes and showing its best efforts at poor crisis management. There are many reasons why the decision to bail in bank depositors makes sense in the case of Cyprus. But the stability of the euro area is not one of them. It is not difficult to argue that Cyprus read more

Early enough in my career in research somebody told me I focused too much on how things should be as opposed to how things are likely to be. Clearly, when in the business of mapping reality to asset prices, what it should be is less relevant than what it is likely to be. For many read more

Last Thursday we learnt that dissent within the Fed is on the rise, which led markets to assign a higher probability to a withdrawal of monetary stimulus over the foreseeable future. On the fiscal side, the deal struck to avoid the fiscal cliff has postponed a significant portion of the negotiations. Thus, economic policy changes read more

Gradually two of the three main risks in the markets appear to have been moderated, while the third is quickly intensifying. The European Central Bank (ECB) has eliminated the tail-risk when it provided the conditions upon which it would put its balance sheet to help bailout Spain and Italy, if necessary. Economic data in China read more