HEDGED.BIZ

A look at economics, markets, finance and the irrational human being

Euro Convergence Trade. Buy Spain, Italy and Portugal, Sell France and Germany

Why would German bund yields fall to zero? Why would they not? ECB QE is a rescue operation. In a rescue operation, you don’t buy the healthiest, you buy the weakest. Greece is not part of the rescue operation by the way, since it is probably to weak to save and on a battlefield you
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Equity and Bond Correlations. Inflation. Commodities. Implications.

In 2014 we saw stronger equity markets and falling bond yields. In 2015 we see slowing equity markets, slower growth and rising bond yields. The 2014 correlation went against historical correlations but could be explained by equity valuations being supported by falling discount rates and thus rerating. Also, despite a stronger economy, bond yields fell
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USD. Strength or Weakness

Where will the USD go, up or down? We dealt with the possibility that the Fed would delay the rate hike and concluded that any resultant USD weakness would be temporary. As long as rate hikes were on the horizon, any USD weakness would be temporary. If a rate hike was ruled out indefinitely, then perhaps
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Japan. Abenomics and the BoJ Run Out Of Options.

Japan is a cautionary tale of what happens when an export dependent economy has an inadequate domestic demand base. The Bank of Japan appears to have run out of options. QQE on its own can exert pressure on interest rates and boost output but on the fiscal policy side, tax hikes have the ability to
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So You Want To Run An Asian Private Bank

When the going gets tough the tough find another gig. Basel III and Dodd-Frank getting in the way of your investment banking business? Taxpayers tired of footing the bill for your proprietary trading desks’ follies? Pesky shareholders asking you what your next trick is going to be to get the share price rising again? Wealth
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