The Rich Got $17 Trillion Richer

Despite the many negative headlines, 2012 was a good year for markets. Listed below is a rough snapshot of total returns in USD – most asset classes returned double-digits. 2012 was a year to look through pessimism – how did your PA do? I would estimate that Global Financial Wealth rose by $17,500,000,000,000 to $162 trillion (I ignore […]

QE3 Will Work if it Shifts Expectations That the Fed Will Tolerate More Inflation

Beyond the straightforward mechanics of QE3 (i.e., the Treasury and MBS purchases), the Fed’s impact on expectations is key. The guidance indicated that support would remain in place until the economy is well in their clear. By aggressively pushing on bond yields, and more importantly, promising to maintain that effort, Bernanke and Co. definitely had […]

Companies Stave Off Defaults

I link to this Bloomberg article in the RGE STRATEGY Cross Asset Monthly (CAM), but it is worth a look. TXU has also been in the news lately, paying creditors cash on the barrel to look the other way. In the CAM I show how much “delaying the inevitable” is worth for bondholders, and it […]

Lower Correlations: Only an Interlude

The developments in markets have been encouraging lately: volatility is down, and so are correlations. In fact, the first is largely a direct cause of the second, as RGE explained here and here several months ago when the opposite phenomenon was occurring (in line with an argument put forth by Harry Markowitz that ‘beta’ swamps ‘alpha’ when the former is large).

European Market Snapshot: Most Stocks Fall as Economic Growth Concerns Outweighed Strong Corporate Earnings

Early on in the trading hours, European markets posted gains on optimism about corporate earnings before paring down those gains to close lower for the day on concerns over economic growth. (See RGE Analysis: Cross Asset Monthly: A Summer of Discontent: Navigating the Tug of War Between Greed and Fear). U.S. durable goods orders unexpectedly declined 1% in June, its second straight monthly decline. Economists surveyed by Bloomberg expected an increase of 1%. (See RGE Critical Issue:  U.S. Business Investment: Are Durable Goods Orders Pointing to A Moderation in H2 2010?).

RGE’s Wednesday Note: Still Stressed After Tests

We’ve been digesting the results of European bank stress tests, which appear to have made neither markets nor analysts less stressed. According to the Committee of European Bank Supervisors (CEBS), only seven banks failed to pass muster out of the 91 tested. The CEBS also announced on July 23 that the recapitalization needs of the failures—five Spanish cajas, Germany’s Hypo Real Estate (HRE) and Greece’s ATEbank—amounted to €3.5 billion (US$4.5 billion).

RGE’s Wednesday Note: No Golden Ticket

For the better part of ten years running, all that glitters has, in fact, been gold. Since 2001, the precious metal has outperformed all of the core asset classes, gaining an average 15.3% per year in dollar terms since January 2001.

Gold is back in vogue for several reasons. Investors view it as an alternative to fiat money, as a hedge against extreme economic risks—which now include both high inflation and deflation—and as a measure of protection against financial meltdown. Given the intensity of the economic storm that has broken out over the past three years, in which all three fears have been invoked, gold and its fellow precious metals have spiked in price. RGE’s forecasts for these metals, and for all the commodities we cover, are outlined in our fresh-off-the-presses Q3 Commodities Outlook, available exclusively for clients.

A Few Takeaways from the May TIC Data

The May release from the Treasury International Capital Data presents a bit of a puzzle.  Many people, myself included, had expected a bit more of a flight to safety by private investors to offset some of the clear reserve disaccumulation across many emerging market countries. There were net inflows, but only about US$17.5 billion as flows from private investors only partly offset the reduction in holdings from foreign official buyers.

Net purchases of U.S. long-term treasuries slowed significantly to just under US$15 billion, compared to over US$100 billion in previous months.  As yet, I wouldn’t get worried about U.S. debt financing given a) a deleveraging U.S. consumer and b) the fact that reserve accumulation kicked off again, albeit at a slower pace, in June as the “risk-on” rally resumed. But it is something we will be watching closely.

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