Up and Down Wall Street
A Liquidity Time Bomb in the Bond Market?
Bond ETFs and mutual funds are underpinned by much less liquid assets. That, Nouriel Roubini warns, is a recipe for disaster.
By Randall W. Forsyth
June 5, 2015 9:45 p.m. ET
But in the postcrisis regulatory environment, banks’ market-making has been curtailed. New regulations and capital charges have induced them to shrink their securities inventories—which serve as the buffer between buyers and sellers. The result is greater volatility, as Roubini writes, a point on which virtually all fixed-income pros—whether institutions on the buy side or Wall Street banks on the sell side—agree.
While the Fed’s remit is to promote high employment and low inflation in the U.S., the impact of decisions by the central bank overseeing the world’s biggest economy and financial markets extends far beyond its borders.
Cleaning Out the Attic
By John Mauldin
Jun 06, 2015
Latin America Conference
Tough Choices as Well as Opportunities for Latin America
June 5, 2015
- Growth continues to slow in Latin America, modest recovery expected in 2016
- Conference examines key issues confronting the region and policy priorities
- Region should focus on policies that promote productivity and investment
The one-day gathering, hosted by the International Monetary Fund, brought together regional experts, leading academics, senior policymakers, as well as IMF staff to discuss the current difficulties facing Latin America and policy priorities for the region. The conference is part of a series of IMF-related events in Latin America in preparation for the 2015 IMF and World Bank Annual Meetings in Lima, Peru.
“The conference is an important opportunity to take things forward: to hear your views so that together, we can frame an agenda for Lima that can help us navigate the challenges we face—and claim the brighter future that awaits the region,” said IMF First Deputy Managing Director David Lipton in his opening remarks to the conference.
Slowing growth, despite some divergence across countries
Economic activity in Latin America has been slowing down for several years. Regional growth is expected to dip below 1 percent in 2015, followed by a modest recovery in 2016, said Alejandro Werner, Director of the IMF’s Western Hemisphere Department.
Panelists pointed out that, despite the slowdown, there are significant differences across the region. Arminio Fraga, former President of the Central Bank of Brazil, argued that countries with strong macroeconomic fundamentals generally had more favorable prospects in the current environment. Countries in the north would also benefit from their strong ties to the United States, while South America is suffering because of its dependency on commodities, explained Guillermo Ortiz, former governor of the Bank of Mexico.
Charles Collyns, Chief Economist and Managing Director at the Institute of International Finance, added that it was likely that three of the largest economies in Latin America—Argentina, Brazil, and Venezuela—will be in a recession this year. Mario Blejer, former governor of the Central Bank of Argentina, warned that Latin America, like emerging markets more generally, has “lost its dynamism.”
Managing the slowdown
The conference considered the reasons behind the slowdown in Latin America and discussed looming risks on the horizon. Panelists agreed that external factors have played a key role in the slowdown—prospects that U.S. interest rates may rise, the sharp decline in commodity prices, and the slowdown in China. “Latin America has been affected by a lack of demand in the advanced economies, which has been augmented by the deceleration in economic activity in China,” said Nathan Sheets, U.S. Treasury Under Secretary.
Carmen Reinhart from Harvard University observed that exchange rate flexibility has helped the region cope with external shocks. “Had exchange rates not been flexible, the realignments that we’ve seen in the region would have been currency crises,” she said. Reinhart added that managing crises is crucial for raising living standards across Latin America on a sustained basis.
But Joaquim Levy, Finance Minister for Brazil, cautioned that exchange rate flexibility has its limits. To navigate the difficult external environment, he said that Latin America would be better off pursuing structural reforms but in “very precise ways,” such as by improving tax regulations and the incentives for workers and firms. Reinhart added that changing pension incentives would be another concrete structural policy to increase the saving rate in Latin America.
Raising potential growth
Panelists also recognized the remarkable progress that Latin America has made since the early 2000s in terms of economic growth, financial stability, and social gains, including dramatically lower poverty and inequality. Economic frameworks have been strengthened, policy credibility has improved, and exchange rate flexibility provides and important buffer against external shocks. While recognizing this progress, panelists came up with a number of priorities for raising productivity and potential growth over the medium term:
● change the incentive structure for firms and individuals to reduce informality;
● improve the business climate;
● diversify production and exports;
● increase infrastructure investment;
● improve institutions and the rule of law;
● increase labor market flexibility;
● take more advantage of regional trade and global value chains; and
● improve the quality of education.
Shannon O’Neil, a Senior Fellow at the Council on Foreign Relations, said that Latin America is the region with the largest gap in terms of what companies say they need in terms of worker skills and what the labor force can actually provide. “Over one-third of companies can’t get the workers they need,” she said. Santiago Levy, a Vice President at the Inter-American Development Bank, agreed and added that labor and capital in Latin America are not being allocated to their best uses, due to high effective taxes on productive activities in the formal economy. Panelists also mentioned the high and variable logistics costs for companies interested in doing business in Latin America.
Several panelists mentioned the role of smart industrial policies to enhance growth. O’Neil said that such policies would help Latin America move up the global value chains. However, Miguel Castilla, former Minister of Economy and Finance of Peru, cautioned against mistakes associated with past industrial policies. The region could also do more to deepen integration through trade with each other and with other dynamic regions.
Several participants observed that a big challenge for Latin America was stamping out corruption.
For Latin America, the most important reform is the rule of law—that would be a “real game changer,” said Ortiz. Andrés Velasco from Columbia University added that political reform is a key priority for the región.
June 9, 2015 12:41 pm
Greeks chose poverty, let them have their way
It is clear that citizens have no appetite for modernising society, writes Francesco Giavazzi
If the Greeks do not want to modernise, we should accept it. By a large majority, they have voted for a government that, six months after the election, remains vastly popular. Its popularity with the electorate signals a wish to remain a nation with a per-capita income half that of Ireland, less than that of Slovenia. In a few years it will be overtaken by Chile. I only hope that no one in Athens dreams that debt forgiveness and Grexit offer an alternative path to growth.
We should ask ourselves whether it is really so important to keep Greece inside the EU. (Barring a treaty change, leaving the euro entails leaving the EU.) The criterion should not be the protection of our credit: that is gone, like it or not. Nor should it be the risk that there might be a run on the euro because of contagion: thanks to the actions of the European Central Bank, monetary union today is resilient enough to withstand Grexit.
European leaders should stop treating the Greek problem as if it were merely a financial issue.
It goes to the heart of European integration. That project has undoubtedly accelerated as a result of monetary union (just think of the decision to remove bank supervision from national control).
But the euro cannot be a substitute for further political integration. Indeed, without such integration, the euro cannot survive — and today, Greece stands in the way of it.
The writer is professor of economics at Bocconi University in Milan.
Norway Will Divest From Coal in Push Against Climate Change
By JOHN SCHWARTZ
JUNE 5, 2015
The Impunity Trap
Jeffrey D. Sachs
JUN 3, 2015 .
Yes, Blatter has finally resigned, but only after he and dozens of Federation members once again showed their scorn for honesty and the law.
The first thing any society can and should do is deny respectability to political and business leaders who willfully abuse the public trust.
Read more at http://www.project-syndicate.org/commentary/corruption-financial-sector-impunity-by-jeffrey-d-sachs-2015-06#QMkz1T21T5R7JDHB.99
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
No soy alguien que sabe, sino alguien que busca.
Only Gold is money. Everything else is debt.
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Quien no lo ha dado todo no ha dado nada.
History repeats itself, first as tragedy, second as farce.
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
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