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Monetary Policy Prescription
With the prospect of deflation, monetary policy alone without strong fiscal policy
has a marginal effect in stimulating the economy. By expanding Quantitative Easing
by doing portfolio-restructuring purchasing corporate bonds, the Federal Reserve
will expand the beneficial effects directly into the corporate financing environment.
The Feds choice is limited, by cutting out the stalled banking system and applying
QE directly to businesses they have the best chance of creating a beneficial shock
to the system and some measure of sustainable growth.
Yuan Appreciation - Implications for China’s U.S. Treasury holdings
Many commentators expect the appreciation of the yuan to force China to invest more
in US Treasury bonds. I believe it will have the opposite effect as their past investment
motives have not been fully understood. These speculations ignore the fact that
China is the major foreign purchaser of U.S. Treasuries because of its exchange rate
policy. The historical data shows that China’s exchange rate policy was complemented
by China’s ownership of U.S. Treasury securities, more than some economists will
Did the CDO cause the financial crisis or was it blindness, the need for riskier
CDOs played a notable role in the financial markets. Did the CDO cause the financial
crisis or was it blindness, greed and the need for riskier assets? The constructors
of the CDOs may not bear direct responsibility. Rather their reckless use, misunderstanding
and ignorance of key warning signs likely contributed to the magnitude of the financial
crisis. You can observe the financial landscape today and recognize from the survivors,
walking wounded and the absentees those who knew and those who had not understood
the use of these tools.
Housing values skewed, Index can misdirect
Distorted home price indicators can adversely affect the consumer by increasing expectations
of a stabilized housing market. If these false expectations do not become reality,
the result will be consumer fear. The S&P/Case-Shiller Home Price Indices are more
designed to measure the growth in value of residential real estate more towards where
the market should be rather than where the market actually is.
Fed's magic is weak. Bernanke cast his QE spell on the only target in range, "financing
Monetary policy intervention did not achieve the effects that most hoped. What merits
applause is the ingenuity of targeting an increase in "financing wages" as a means
to spur spending out of profits. More ambitious targets were beyond the firepower
of the Fed - the analysis proves that QE2 was at least deployed intelligently towards
one goal that could be achieved.
Euro crisis - phase two
It falls to the son to undo the folly created by his father - wider lessons for the
EU and US.
The first decade of the 21st century can be characterised as the Debt Decade and
the next is likely to be known as the Austerity Decade. There is no rich uncle in
China to bail us out and the losses are going to have to be paid by someone. The
argument is over how the bill will be divided.