Equity and Bond Market Economic Research
Global Perspectives
Our own in-house research from Strategist/Senior Portfolio Manager, Iraj Pouyandeh. Our research provides insights into global financial markets.
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Adjusting to a higher US savings rate - 06/29/2009
The outlook for the US economy is improving. An examination of the economic data reveals that green shoots outnumber yellow weeds - - but not by a huge margin. The shape of the recovery remains uncertain though it would be reasonable to exclude a traditional v-shaped rebound.
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What’s the right size for banks? - 06/22/2009
Governments are busy formulating regulations for the financial services sector to ensure that renewed exuberance does not result in systemic risk of the sort we have witnessed over the past two years. There is a tough balance that needs to be struck between implementing sufficiently tight regulation to curb excessive risk-taking and being so restrictive that innovation and efficiency are compromised.
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Shifts in the global balance of power - 06/08/2009
In his trip to China last week, Tim Geithner, the US Treasury secretary made some fairly unexceptional comments about the need for appropriate policies in both countries to address the issue of imbalances. He was careful not to say anything about currency manipulation, which would have upset his Chinese hosts inordinately.
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The gap between management pay and performance - 06/01/2009
The recession and the financial crisis have glaringly focused attention on the issue of the magnitude of compensation for higher ups, relative to average working people. This has occurred much to the chagrin of upper management who pay public relations firms handsomely to portray them in the most positive light possible.
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Most Actively-Traded Funds Update - 05/26/2009
It comes as no surprise that global economies and investments took their licks over the last year and a half. The MSCI World Index reached an all-time high on October 31, 2007 before falling a staggering 59% through March 9, 2009. The Dow Jones Industrial Average fell 54% from its peak on October 9, 2007 through the trough hit on March 9 of this year. Since that bottom, the MSCI World and Dow have gained 34% and 27%, respectively through May 22. That’s right – investors with perfect market timing could have gained 34% though a global stock index in a mere 11 weeks! Of course though, no one has perfect market timing. In fact, statistics proves that only the very lucky, and occasionally the truly gifted, have beaten the market in the long-term by market timing.
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Tougher times for the greenback - 05/26/2009
The US dollar enjoyed a period of revival during the worst of the global recession. As the fires of the financial crisis spread, credit was being extinguished even as more dollars were being printed, relieving the system of an excess supply. It also helped that the United States was considered to possess a safe-haven status. Now that the world economy has stabilised and is set for recovery, the greenback is facing renewed difficulties.
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Tightening up regulations won’t be easy - 05/18/2009
Ever since the financial crisis engulphed us, last year, there has been lots of discussion about the failure of free markets and the need for tighter regulation of the financial sector. It is evident from the printed word and the ongoing chatter that there are diverse views about the degree of efficiency of free markets and their potential for generating crises. In addition, there are powerful special-interest groups intent on protecting their turf, not speaking of those with a pro or anti-market ideological programme.
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Looking towards an economic recovery in the US - 05/11/2009
Risk aversion is declining and investors are feeling more comfortable about the outlook. Of course, a depression-like outcome was always highly unlikely. But the uncertainty and associated fear factor was at such a high level that people were willing to believe in the possibility of awful scenarios.
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Stabilisation of the global economy - 05/04/2009
There are further signs that the global economy is stabilising. The most recent set of data indicate that economic activity has stopped deteriorating at a rapid pace. This has given some encouragement to investors, who until recently were factoring in expectations of a severe recession that would just skirt becoming a depression. Now, they can interpret the evidence as pointing to merely a hard recession, with the likelihood of a rebound in sight.
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Protecting Wall Street interests - 04/22/2009
The Obama administration continues to muddle through, in its handling of extensive problems in the financial system - - despite the fact that the gravity of the situation calls for rapid and decisive action. It demonstrates the hollowness of the promise of change that the president made during the election campaign last year.
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Reviving the US banking system - 04/20/2009
According to reports in the media, banks are set to pass the US government’s stress tests on how well they would fare if the recession deepens. Whether or not the story is the result of a deliberate leak, somehow we suspected all along that the examiners would come up with a positive tale to tell. In current circumstances, saying something different would have too many negative consequences. Managing expectations and boosting optimism is part of the government’s game plan.
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Global change in power and regulation - 04/06/2009
The policy intentions pronounced at the recent G20 summit meeting went down well with the financial markets. It certainly stimulated an increase in risk appetite. The sherpas did a grand job working hard behind the scenes so that the summiteers could claim success - - and they did so effusively, for maximum effect.
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A Few Glimmers of Light - 03/30/2009
The global economy is still struggling, and will continue to do so in the first half of the year. But the newsflow is now somewhat less than unrelentingly bad. Generally, the data coming out of the US and China represent a few glimmers of light among the darkness, even as Europe and Japan have yet to show more promise.
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Governments Get Ready For More Action - 03/16/2009
G-20 finance ministers are trying to put together a coordinated plan to tackle the global economic crisis. Inevitably, there are differences among them. However, the problems they face are sufficiently severe to concentrate minds and prevent major squabbling. The distorting effects of current government policies will have to be faced in due course. But, for now, it is important to focus on reducing the severity of the recession.
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Perennial Roles Of Fear And Greed - 03/09/2009
People often take decisions that misestimate the actual risks involved. This is true in both boom and bust periods. Fear is currently the prevalent emotion in financial markets and is reflected in a flight to what are considered to be safe-haven assets. Under such conditions, certain asset classes can be significantly oversold or overbought.
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2008 Results: Butterfield Bank Dividend Cut 50%, Government‐Backed $200 Million Share Issue - 03/06/2009
Butterfield reported 2008 net income of $4.8 million, or $0.05 per share, a year on year decline of 97%. Net income included a one time gain of $115.5 million relating to the Fulcrum (fund services) merger and $224.6 million in one time losses $158.2 million related to unrealized losses in the Bank’s investment portfolio, $50.2 million to credit agreements used to support the Butterfield Money Market Fund, and $5.2 million was due to goodwill impairment.
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Hard Times Won't Last Forever - 03/02/2009
The global economy is in the thick of a serious recession and the data print is quite negative. Inevitably, this increases the level of gloom among investors. At such times, pessimism is likely to lead to overshooting the mark regarding risk aversion. By midyear we should be seeing some signs of bottoming out in leading indicators, and by year end the global economy should be in a growth mode.
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Too Much Gloom On The Markets - 02/23/2009
Corporate earnings reports and economic data continue to be unrelentingly awful, just about anywhere in the world. But this is not unexpected, as we are currently experiencing the worst of the global recession. At the same time, faith in the ability of the authorities to turn things around is somewhat shaky.
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The Obama Stimulus Plan - 02/16/2009
The Obama administration’s plans to stimulate the economy and stabilise the financial system have experienced a difficult passage through Congress. Despite criticism, the stimulus package will have a much-needed positive impact on economic activity. However, the plans for getting the financial system back to health are vague and indecisive, when conditions on the ground require bold and focused action.
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The Battle Between Deflation and Stimulation - 02/02/2009
Recessionary forces have taken hold in the global economy. Data releases from all regions of the world confirm the depth of the recession. However, massive stimulus packages have been introduced by governments, and this will have a positive impact. If protectionism is kept at bay, the outlook is not all doom and gloom.
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Exchange Rate Adjustments - GP - 01/26/2009
Increasingly, currency markets have to deal not just with the usual fundamentals but also with government policies and their potential impact. Of course, government talk and action have always been important factors that traders normally take into account. But in current circumstance, they loom even larger than before.
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Central Bank Largesse - GP - 01/19/2009
Central banks are acting vigorously to restore the health of the financial system and to prevent the recession from deepening. There is plenty of pressure on them to be forceful. The planned exit strategy will be difficult to execute. Under current circumstances, there is a high likelihood of committing policy errors.
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Policy-induced Volatility - GP - 01/12/2009
Volatility remains relatively high on financial markets. Governments are involved in major policy actions with substantial impact, causing changing views among investors. Uncertainty about the outlook for the global economy means that expectations are not well anchored and will be revised frequently. Views about the future have important implications for asset allocation strategies.
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Between Pragmatism and Idealism - GP - 01/05/2009
Expectations of change are high as Obama prepares to take office. Needless to say, the challenges on the economic and foreign policy fronts are enormous. Indications are that Obama is a pragmatist and will be cautious in implementing new policies. Political considerations, inertia and constraints created by past policies will translate into a good deal of continuity.
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A Study In Contrasts - GP - 12/15/2008
Earlier this month, there was a meeting in Beijing between officials of two of the world’s biggest economies. On one side of the table, heading the Chinese delegation, there was Wang Qishan, representing state capitalism. And on the other side, leading the US team, we had none other than Henry Paulson, representing crony capitalism.
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Slowdown Fears In China - 12/01/2008
The rapidity of the global slowdown, its coordinated nature, and the reduction in inflation pressure has surprised many people. Actually, it constitutes further evidence of the degree of integration and speed of response in the world economy. As Nassim Taleb has commented: “sales at Wal-Mart decline today and a factory in China closes tomorrow”.
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Economies Slump and Deflation Fears Rise - 11/24/2008
The global economy has been decelerating sharply and, of course, the downswing is a synchronised one. There is gloom in every region and country, as news comes in of this or that economy slipping into an officially recognised recession. But, unofficially, ordinary people already knew how much it was hurting.
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Trouble In The Hedge-Fund World - 11/17/2008
These are hard times in the hedge-fund world, as deleveraging takes its toll. Years of easy access to credit allowed many funds to boost performance by engaging in significant leveraging. In many cases risk management was inadequate, and the price of that oversight is now being paid. The industry faces downsizing, rationalisation and tighter regulation.
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Bad Policies Create Market Distortion - 11/03/2008
Past government policy errors were the major contributors to current problems. Easy credit policies, combined with pro-cyclical fiscal policies and improper regulation of financial markets have distorted market signals. Unfortunately, current government actions are likely to cause further distortions and create instability in the future.
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American Capitalism In Disarray - 10/27/2008
The process of deleveraging continues to deflate asset prices and to correct the imbalances built up during the years of easy credit and excessive risk-taking. It is erroneous to blame the market mechanism for the current crisis. Primary blame should be borne by policymakers who deliberately contributed to the growth in the imbalances and the enormous leveraging.
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A New Phase in the Cycle - 10/20/2008
A coordinated global slowdown is underway. There is a risk that China’s economy may underperform, relative to the authorities’ expectations, as domestic demand fails to compensate for slower exports. Heavy government intervention, across the world has achieved a modicum of stability in the financial system.
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The Heavy Hand of Government Intervention - 10/06/2008
The global economy is experiencing a synchronised slowdown. Inflation pressures are abating and commodity prices are falling. The crisis in the financial system is spilling over into the real economy. Governments are intervening heavily to prevent contagion and systemic failure.
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Markets Hope For A Measure Of Stability - 09/29/2008
The US government’s rescue plan for the financial system isn’t a final solution for the banks’ travails. Problems of capital adequacy and households with troubled mortgages loom large - - in a deteriorating economy. More banks will go bust and more government debt will be issued. Many hedge funds are feeling the pain.
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Turmoil In The Financial Markets - 09/22/2008
Financial markets are experiencing tumultuous times. US authorities are intervening massively to prevent contagion. Their actions have exacerbated volatility. Details of their rescue plan are still being worked out. The short-term result of the turmoil will be even weaker economic growth.
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Tottering Financial Firms - 09/16/2008
AIG hopes to be rescued by the government as its prospects deteriorate. Saving it also rescues the management from the consequences of their earlier actions. The US government appears to have recognised the problem of moral hazard in refusing to bail out Lehman. Remaining investment banks are in survival mode.
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Falling Commodity Prices Signal A Weak Global Economy - 09/08/2008
The US economy continues to show weakness. According to the government employment report released last week, non-farm payrolls fell again in August, for the eighth month in a row. And the unemployment rate climbed to a five-year high. Meanwhile, another bad sign is that job losses are fairly widespread among industries.
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Central Bankers Hope and Pray - 09/02/2008
Central bankers face tough decisions in balancing the risks to growth and inflation, amid a great deal of uncertainty. Currently, the stance of monetary policy at the global level is to support growth rather than fight inflation. The latest GDP data revision gives a false impression of the strength of the US economy.
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Widespread Economic Slowdown - 08/25/2008
Economic slowdown is evident in major economies. However, inflation remains high. The Eurozone economy is stagnant but policymakers are constrained from reducing interest rates. Japan is weak and depends on slipping global growth. The UK economy is stumbling, while the US’s dependence on exports as a major driver increases its vulnerability. Only the Chinese economy is strong but prospects depend on the success of activist policies.
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Stock Market Rotation - 08/11/2008
Commodity prices have continued to soften. In terms of sector rotation, it has been profitable to move out of energy and basic-materials and into consumer-discretionary and financials. Stock markets, such as Canada and Australia, that are commodity intensive, have been hit particularly hard. Emerging-market equities are also lagging, even as the US market's relative performance impresses.
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Softer Commodity Prices Signal Weaker Growth - 08/04/2008
Commodity and oil prices are softer, on prospects of weaker global growth. Policymakers in the US are busy trying to shore up the financial system. The cost of intervention is mounting. Chinese officials try to keep growth going via slower currency appreciation and less vigorous monetary tightening, even as inflation remains high.
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July 2008 - A Dose of Stagflation - 07/07/2008
Stagflation is causing concern among policymakers. Expectations of higher inflation are becoming more entrenched. Economic structures are indeed different from those that prevailed in the 1970’s. So it is hoped that the presence of stagflation will prove to be brief. But, globally, monetary policy continues to be easy and it does not appear that some central banks in Asia and the US take the inflation threat seriously enough.
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June 2008 - Rising Inflation Is Raising Worries - 06/02/2008
Inflation is on the rise and expectations that it will move higher are also taking hold in a number of countries. Central banks are now operating in a very challenging environment; such that attempts to boost growth increase the probability of higher inflation. Investors are closely watching policymakers’ reaction to inflation risks. Shifting views on global growth and inflation will be reflected in volatility on financial markets.
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May 2008 - Growth Prospects and Inflation Problems - 05/06/2008
The US economy continues to put in a feeble performance, with exports helping to prevent even greater weakness. China faces an inflation problem that the authorities are trying to address with measured policy steps. The Eurozone economy’s inflation challenge is less serious but it is keeping the ECB from reducing interest rates. Japanese domestic demand shows no signs of being able to drive the economy if global growth falters.
