A week ago we said that Europe would pay dearly any policy mistake, but we did not think it would be so much so soon… The size of the potential financial package known yesterday exceeds most expectations, which is the reason of its success. In terms of the ‘theory of crisis management’ it is a read more

The fiscal crisis that started in Greece, and drove attention to similar problems in Portugal, Spain and Italy, is way more than a fiscal crisis. This is about the euro as a currency and about the EU as an institutional framework for governing a union, even more so now that there appears to be a read more

Volatility has increased since last week. Even though we considered reducing risk in our portfolios, we decided not to do so. We do not think it is the right time to take any actions. We believe that the increase in the observed volatility could be explained by three main topics, some appear to be more read more

In the last three days the markets seem to be signaling that something has changed. The non US stock markets that had previously recovered the most are now the biggest underperformers. Commodities are showing the same underperformance. The dollar is slowly recovering. It seems that the market is testing the general consensus that the rest of read more

The Brazilian government decided to increase the tax to capital inflows (with the exception to direct investment). This is a bad policy but is not enough to overturn the country’s attractiveness to international capital inflows. Capital controls increase the cost of foreign investment for the economy and therefore diminishes potential growth. The Brazilian government took read more

The Fed said they are prepared to buy US Treasuries outright, which is a policy action that can be analyzed from many angles, some more complicated than others. The bottom line is that it increases the probability that we end up paying for the current fiscal expansion and balance sheet problems through the inflation tax read more

After a week being back from my favorite southern country (Uruguay), I realize not much has changed in G7’s policy stance. At the same time, markets away from the US banking system seem to be normalizing. I think US policy continues to pollute the picture with its lack of clear direction/diagnostics. Every macro tool available read more

Last week I attended a seminar by Nobel Prize Winner Bob Lucas, on the current international credit crisis. He gave a very big picture view based on a comparison to the 1930s crisis. His bottom line was that as opposed to the Fed response in 1931, this time around the Fed policy response is not read more