Jan 13, 2012  - The old saying “Watch what they do, not what they say”, has never been more true than with recent ECB (European Central Bank) actions. As we have said for some time, the main central banks of the world are the only game in town now that the sovereign debt crises—actual or potential—have taken governments out of the play. This is particularly true in Europe where the crisis of confidence is most acute and a persistent run on European government and bank paper has left a huge question mark over the roughly €2.0 trillion that governments need to raise and refinance in 2012 and further euro bank needs of €1 trillion in maturing debt rollovers and new capital.

In the face of European political dysfunction and gridlock, the ECB has once again brought the crisis off the boil. Following the announcement in December of the ECB’s three year loans at 1%, banks rapidly took up some €500 billion of cheap funding, much of which appears to be used in arbitraging the higher level of yields on Italy, Spain and other country bonds.

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Jan 16, 2012 - The 1945-2007 period was wonderful in almost every way, particularly for investors and it was common to assume that this was “normal”. However, it was anything but in historical terms for many reasons. One of the most important reasons is that over most of those 62 years, there was a debt-fuelled artificial growth in incomes and particularly wealth in the form of housing and equity asset inflation (Chart 1). 

There was the appearance, but not the reality, of stability. The debt bubble was driven by a combination of factors and high on the list would be government policy, the rise of an entitlement mentality, the decline of personal responsibility and the discipline and progressive weakening of banking governance, as regulation was dismantled.

As debt rose relative to GDP after 1980, the financial system and the economy became increasingly vulnerable to a shock. The crash of 2008-2009 marked the end of that era. The subsequent great reflation aborted a downward spiral and gave us a two year artificial recovery.  In the process, it turned a private debt and banking crisis into a public debt and, in Europe, a second banking crisis.  

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Forbes - These Books will make you Rich - Dec 2010

Financial Times - The Best Books for Bulls and Bears -  Nov 2010

London Evening Standard - The Books We Loved in 2010 - Nov 2010

Wall Street Journal (FINS) - Six Best Investing Books for 2010 - Sep 2010

Sample Recent Commentaries (click to view)

Money, Credit & the Economy - Jun 2, 2011

U.S Sovereign Debt crisis:  Not if, but When - Apr 26, 2011

Fading Tailwinds - Apr 8, 2011

Why the Secular Bears are Wrong - Jan 17, 2011

U.S. Government Debt:  The Upward Spiral Continues - Sept. 1, 2010

Asset Allocation:  Volatility, Correlation & Returns - Aug. 12, 2010

Enough Blood in the Streets? - June 1, 2010

The Great Reflation - May 4, 2010

 
 
 
 
 
 
 
 
  
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Severe macro risks persist on three fronts:  the eurozone, stagnant developed-nation economies, and China.  It is difficult to say how any of these issues will play out, and so continued caution remains appropriate.