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Showing posts from February, 2010

They Applauded the Plastic Dummy

Last night Ms. FitN and I went to the Ballet, the advantage of living in the Great White North is that these events are reasonably priced – compared to London and New York. Anyway, we have season tickets for the Montreal Ballet season (among many other cultural events).Generally, I like the ballet, having lived as a student in London (London is cheapish when you are a student), a saw great productions, and an appreciative audience.
That was not the case last night. Ms. FitN and I saw “La Sylphide”, one of the world’s oldest romantic ballets and not only was the performance wooden and out of synch with the music – considering it was canned music (as opposed to a live orchestra) it’s rather remarkable..
Now Montreal audiences in general believe that any performance is deserving of a standing ovation, in fact, I suspect that this is our compass to a good show, you would never have an audience in Montreal booing (as they have done in recent year at La Scala or Carnegie Hall).“It was so good…

Debt as Heroin

A shocking title, but I just read a fascinating analysis by Albert Edwards (from SocGen).  Edwards has been working on the sovereign debt problem.  Those investors who benefited the most from shorting Greece will remember his Q3/09 commentaries [around US Thanksgiving] where he mentioned that the PIGS were in immediate danger of defaulting on their debt obligations.  Earlier this week he wrote a more comprehensive analysis based in part on the work of Jagadeesh Gokhale (Senior Fellow at the Cato Institute – a rightwing think-tank…).
Edwards’ analysis is fascinating.  He makes a very interesting observation: those countries that suffer from the worse structural deficit – a government deficit even when the economy is operating at full steam, are behaving like heroine addics; they will promise anything as long as they can get their next fix!  Edwards takes the view that those same countries that have the largest gap are those who historically been the worse at managing their debt burden. …

Greece and the EU

Europe seems to have decided on a "September 2008" response to the Greek crisis: 
                 Announce a rescue plan before you've decided 
                 on any of the details. 

Inflation Vs. Deflation

Revisiting the inflation debate requires first stating my own view, I am strongly in the deflation camp; the data doesn’t entirely support my position, but it is important that the readers know my bias.
A few days ago, one of the Bank of Canada’s deputy Governor made a speech yesterday in Quebec City was any indication of that institutions view of Canada’s growth prospects, the error term surrounding the BoC’s optimistic base-case economic scenario are far too high for any rate hike on the horizon. “the recovery will be difficult… a good deal of the recovery is supported by expansionist budgetary and monetary policies and we are still waiting to see some momentum from the private sector” …”we’re not out of the woods yet”.
The case for Inflation
(a) Output Gap
The primary method by which the Bank of Canada (BoC) determines the risk of inflation within the Canadian economy is the size of the output gap, the difference between economic growth and potential growth.Early in February 2010 the …

The Baltic Dry Index

The Baltic Dry index is an interesting index, because it shows in real time the demand and supply for non-containerized goods transport. In other words the “old style” shipping.The reason the index has over the past few years attracted the attention of analysts like me is that it provides a very good indicator of what is happening, on a global basis, to the shipping of raw materials.However, like all index it works best when there is no externalities.Earlier in my career I was very involved in shipping finance – lots of colorful characters, but one of those ship owners told me that in his business, a single excess vessel is a glut of shipping capacity.In fact, he was just restating the sector's reality of very low demand elasticity; price rise dramatically when there is shortage, and fall equally dramatically when there is even a small surplus.The Baltic dry peaked in early 2008 at 10,000 but today trades around 3,000.Several commentator have indicated that the fact that the BDI n…

Tightening of Canada’s Monetary Policy

2009 was a year when OECD government (excluding Germany) decided that it was a good idea to fully open the economic stimulus faucets. Nobody doubts the amount of economic stimulation undertaken by various governments.The U.S. federal government went full blast with a $1 trillion (OK I know that this was the headline number, and actual stimulus money was a fraction of this amount, still…). China also stimulated its economy with $1 trillion (in their case the amount underestimates that level of stimulation). Now that the “worse of the crisis” is over, governments are re-adjusting their policies; here in Canada there is little question that the Bank of Canada’s accommodative monetary policy will come to an end the odds are for changes to occur this summer, but at the latest next winter. Canada’s monetary policy is largely driven by externalities.If Canadian monetary policy becomes too restrictive when the rest of the world continues to suffer from economic stagnation, the impact on Canad…

With Appologies to Macro Man Blog

The Devil's Dictionary Of Financial Terms Monday, February 01, 2010With apologies to Ambrose Bierce....

agency, n. A criminally negligent organization that purchased and securitized mortgages;a criminally negligent organization that rated mortgages and mortgage securities.The agencies were late in downgrading the Agencies.bailout, n.A notorious regressive tax; the public underwriting of stupid bets made by overpaid morons.Can you believe their bonus pool was $16 billion a year after the bailout?bail out, v.To selflessly save the global economy from depression and mass unemployment.If we hadn’t bailed out AIG, the unemployment rate would be 25% right now!bubble, n.Part of the dual mandate; the monetary policy goal of the Federal Reserve and the People’s Bank of China.carry trade, n.A financial proposition that concludes with its adherents supine, carried out on a stretcher.CDS, n.The simultaneous purchase of kindling, lighter fluid, matches, and fire insurance on your neighbour’s hou…