Kiron Sarkar - this Sunday's economic update. Mind you I never consider him right about everything; as I've said, his opinions about the Euro periphery threaten to lump him in with the more odious populist elements in the Euro core. Nevertheless, he covers the world economy like saran wrap, and you should follow his updates.
BI - why are Chinese a-shares so weak? Like I was asking this weekend: why are Chinese ETFs showing bullish charts while the $SSEC looks like it's about to puke its spleen out through a nostril?
BofA's Ting Lu says:
Very often the sentiment-driven A-share market is a barometer for Chinese investors’ mass psychology instead of the real economy. More specifically, domestic investors might get increasingly disappointed about prospects of future financial reforms, especially reforms on stock markets. Availability of other investment channels such as wealth management products and housing also divert demand.
It's all down to psychology, basically. And per my previous post, maybe this is a tell not of Chinese poor expectations for the economy, but of increasing Chinese disbelief in the validity of the system in general?
Economist - QE through the looking glass. It is entirely possible that this article was written specifically as a secret message to Gary Tanashian in an attempt to explain to him what qualitative easing really does. If you know more about bond markets than me, you might be able to understand what the hell this guy's talking about. Basically, I can figure out that Jeremy Stein is attempting to explain how QE works:
The above example may be true of a company with diverse financing options, but it’s less likely to be true of a household. Faced with a big drop in the mortgage rate, a consumer is unlikely to borrow $200,000 and plough it into a money market fund. He may pay off some short-term debt, or refinance an existing mortgage. But there’s a good chance he will buy a house (assuming he qualifies for the loan) irrespective of his expectations of short-term rates. This strengthens the case for QE to be conducted through purchases of mortgage-backed securities rather than Treasuries.
If Mr Stein’s story is right, we should expect to see corporations exploiting the drop in long-term rates to refinance short-term debt and repurchase stock but not boost capital spending, and individuals exploiting the drop in mortgage rates to refinance and to buy houses. That, of course, is precisely what is happening.
Mr Stein also argues that even if QE only induces businesses to fiddle with the composition of their balance sheets, that has some benefit. When businesses reduce their reliance on short-term debt, they are less vulnerable to a surge in financial system stress that cuts off their access to credit, making financial crises less likely.
But then he goes into the idea of public money (currency) versus "private money" (e.g. money market, term deposits - investments that "act like money"), and he loses me. I think the idea he's putting forward is:
- that most "crashes" are essentially a run on "money",
- that runs on public money were eliminated by the creation of a Federal Reserve, which has the ability to stop any run by printing money to meet demand,
- that the more recent crashes we've seen have essentially been runs on private money,
- and he's cautioning that we might see more runs on private money in the future?