iPad Mini Index: RMB Fairly Valued, Euro Overvalued

View a larger version of this Geo-Graphic here. The “law of one price” holds that identical goods should trade for the same price in an efficient market. To what extent does it hold internationally? The Economist magazine’s famous Big Mac Index uses the price of McDonald’s burgers around the world, expressed in a common currency (U.S. […]

China’s Currency Conundrum

It seems the People’s Bank of China (PBOC) cannot win. In late February, the gradual appreciation of the renminbi was interrupted by a 1 per cent depreciation (to $1:¥6.12). Though insignificant in overall trade terms, especially when compared with the volatility of floating exchange-rate regimes, the renminbi’s unexpected weakening sparked a global furor. This is […]

Great Graphic: The Yellen Effect

This Great Graphic was generated on Bloomberg.  It shows the price of two financial instruments.  The yellow line is the price of the December 2015 Fed funds futures.  The white line is the price of the December 2015 Eurodollar futures contract. Both contracts sold off hard yesterday and are lower today.  From yesterday’s high to today’s low, both […]

Are Chinese Capital Controls Still Binding? If So, to What End?

Today we are fortunate to have a guest contribution written by Yin-Wong Cheung, Professor on International Economics at City University Hong Kong, formerly professor at UCSC. The recent years have been a frustration for anyone trying to make sense of China’s capital control policies. Capital controls have been an important part the Chinese economic policies since the […]

MMT and External Constraints

To Fix or To Float, that is the question. MMT argues that a sovereign government that issues its own “nonconvertible” currency cannot become insolvent in terms of its own currency. It cannot be forced into involuntary default on its obligations denominated in its own currency. It can “afford” to buy anything for sale that is […]

Choppy FX Price Action at Start of Week

There have been three developments to note to start the week. First, the removal of Yanukovych in Ukraine has seen a continued relief rally with 10-year yields dropping a little more than 100 bp to around 8.9%.   The 5-year CDS has also fallen 185 bp to about 940.  Both are now back to late-January levels.  The […]

Desperate Times, Desperate Measures

The selloff of emerging market currencies and equities continued last week. A Bank of America report noted that investors withdrew $6.4 billion last week from emerging market stock funds, while bond investors are also showing signs of retreating. Moreover, the declines in currency values have expanded outside the “Fragile Five” of Brazil, India, Indonesia, South Africa and Turkey to include Argentina […]

Great Graphic: S&P and Euro Correlation Redux

We show this Great Graphic again because it shows a clear break of a pattern than many investors had come to rely on.   With emerging market panic underway, and the long awaited correction in the equity markets, many have resurrected the old risk-on/risk-off matrix.  The relative strength of the yen and Swiss franc fit into this view. However, […]