Real Interest Rates

Fitch Downgrades Japan To A From A+

With the USDJPY's ascent to 125, 150 and higher having seemingly stalled just under 120, with concerns that the BOJ may not monetize more than 100% of its net debt issuance suddenly surfacing, the BOJ and the Nikkei would take any help they could get. They got just that an hour ago when Fitch downgraded Japan's credit rating from A+ to A, citing lack of sufficient structural fiscal measures in FY15 budget to replace deferred consumption tax increase. 

Volatility Is The Square Root Of Time & Fat Tails

The trio of macro-prudential policy, the onset and evolution of shadow banking, and the nebulous concept of financial stability may have become a toxic cocktail which can be instrumental in moving forward the Federal Reserve’s timeline for lift-off zero bound rates.  The intuition here is stooped in concepts of volatility and how market structure evolution may contribute or detract from asset volatility. Volatility is the square root of time. Financial repression times time equals volatility. Financial repression and/or macro-prudential policy times time equals the inverse of financial stability. Financial stability inverted equals volatility squared.

Modern-Day Monetary Cranks and the Fed's "Inflation" Target

The science of economics has taken a decidedly wrong turn sometime in the 1930s. In the field of monetary science specifically, sober analysis has given way to broad-based support of central economic planning, with both policy makers and their advisors seemingly trying to trump each other with ever more lunatic proposals.

7 Years Later The "Very Serious People" Finally Ask: Was QE Worth It?

"The policy actions that cause financial repression entail a number of unintended consequences. These include potential asset price bubbles, convergence in asset allocation strategies of otherwise heterogeneous financial market participants and an increase in economic inequality. With regards to the latter, the impact of foregone interest income for households and long-term investors is substantial. At the same time, the equity rally has predominantly benefited society’s wealthiest." The hit to US savers: nearly a half trillion.

Bernanke Supercycles

Despite what Bernanke says now, monetary policy is still talked about as if it were “pro-growth” and “stimulus”, powers that even its main proponent and practitioner no longer admits. The enduring legacy is bubbles and cycles, or, again to be fully specific, bubble-based supercycles. The problem is that the 14 million “lost” labor potential may only be the beginning.

Rebutting Bernanke’s Defense Of Himself

My advice to Ben Bernanke is simple. If you consider yourself a public servant, spend less time trying to concoct ways to defend your legacy, and spend more time on what you did that didn’t work, what can be learned from it, and what current policy makers can change and do better. Here is a theoretical title to a Bernanke blog post that I would like to read, but don’t think will ever get wrriten “Things I was wrong about, what I learned, and what the Fed should do differently going forward.”

This Is Why The US Just Lost Its Superpower Status According To Larry Summers

"This past month may be remembered as the moment the United States lost its role as the underwriter of the global economic system... With US commitments unhonoured and US-backed policies blocking the kinds of finance other countries want to provide or receive through the existing institutions, the way was clear for China to establish the Asian Infrastructure Investment Bank," the former Treasury Secretary says, in a sharp rebuke of US foreign policy.

Why From China's Biggest Bear, Hugh Hendry Became One Of Its Biggest Bulls

Considering that Chinese equities are the best performing market in USD terms (second only, oddly enough, to Russia) in 2015, one can see why after a disappointing 2012 and 2013, and modest 2014, Hendry has hit 2015 out of the park with a bang, generating a 10.6% return in the first two monthes of the year. So is Hendry still bullish on China's stock market prospects?  Why yes, and then some. But is he is contrarian just for the sake of being contrarian? Does he see something in China that nobody else does? Or is he simply right... or wrong, as the case may be? We will let readers decide.

Guest Post: The "Person In The Street" Is Correct: The Fed Keeps Interest Rates Low

In the case of the U.S., which thanks to its pool of capital, political and military power, enjoys the exorbitant privilege of having the world's reserve currency, an expansive Fed will not even necessarily "throw seniors under the bus", as one of Bernanke's critics once mentioned, suggesting that monetary expansion erodes life savings of senior citizens. A lot of the monetary expansion results in investment bubbles all over the planet. Some even have "credited" Bernanke with triggering the Arab "Spring", as food prices in the Middle East rose from mid-2010 to an unsustainable level after quantitative easing was re-started. It looks like Bernanke, or at least the institution he presided, is more powerful than he seems to think.

Ben Bernanke Pens First Blog Post, Defends Fed, Says He "Was Concerned About Seniors"

"When I was chairman, more than one legislator accused me and my colleagues on the Fed’s policy-setting Federal Open Market Committee of “throwing seniors under the bus” (to use the words of one senator) by keeping interest rates low. The legislators were concerned about retirees living off their savings and able to obtain only very low rates of return on those savings. I was concerned about those seniors as well."

- Ben Bernanke first blog post

Gold Prices Will Hit Record On Surging Asian Demand, ANZ Says

"Under our central case, gold prices are likely to rise gradually, eventually breaking through the USD2,000/oz level within the next decade. This is the most likely outcome, to which we assign a 45% probability," ANZ analysts say, in a note explaining how a number of factors are converging to make the outlook for gold particularly bullish.

Bob Shiller Asks "How Scary Is The Bond Market?" (Spoiler Alert: Not Very)

With the bond market appearing ripe for a dramatic correction, many are wondering whether a crash could drag down markets for other long-term assets, such as housing and equities. Bond-market crashes have actually been relatively rare and mild. According to our model, long-term rates in the US should be even lower than they are now, because both inflation and short-term real interest rates are practically zero or negative. Even taking into account the impact of quantitative easing since 2008, long-term rates are higher than expected. Regarding the stock market and the housing market, there may well be a major downward correction someday. But it probably will have little to do with a bond-market crash.