Beautiful War - Kings of Leon
Surferbeetle5
Sunday, July 7, 2013
Sunday, May 19, 2013
Risk Analysis - Quantitative Easing
Is Quantitative Easing (QE) akin to a magnetic suspension on a high end car? Magnetic suspensions benefit from the selective application of a magnetic field to iron particles suspended in hydraulic oil. Different settings impact the viscosity of the oil and resulting stiffness or softness of the suspension. Quantitative easing involves the purchase of government bonds and other assets by the government. Different purchase programs impact the real (inflation adjusted) interest rate and associated demand and consumption. Bumpy roads conquered?
There are suggestions that the QE control algorithm may receive an update which will result in a change in asset purchases and eventually interest rates.
Traders and investors would do well to consider the potential impacts, to their holdings, of the next version of QE (QE1, QE2, Operation Twist, QE3...). Let's briefly look at three possible scenarios: no change, bumpier ride, and smoother ride using six indicators. The Federal Reserve and the ECB set interest rates and auto sales and unemployment are a proxy for demand and consumption. The time periods used in the three scenarios are completely subjective:
No Change (2012 historic average annual data):
Is Quantitative Easing (QE) akin to a magnetic suspension on a high end car? Magnetic suspensions benefit from the selective application of a magnetic field to iron particles suspended in hydraulic oil. Different settings impact the viscosity of the oil and resulting stiffness or softness of the suspension. Quantitative easing involves the purchase of government bonds and other assets by the government. Different purchase programs impact the real (inflation adjusted) interest rate and associated demand and consumption. Bumpy roads conquered?
There are suggestions that the QE control algorithm may receive an update which will result in a change in asset purchases and eventually interest rates.
Traders and investors would do well to consider the potential impacts, to their holdings, of the next version of QE (QE1, QE2, Operation Twist, QE3...). Let's briefly look at three possible scenarios: no change, bumpier ride, and smoother ride using six indicators. The Federal Reserve and the ECB set interest rates and auto sales and unemployment are a proxy for demand and consumption. The time periods used in the three scenarios are completely subjective:
No Change (2012 historic average annual data):
- Fed rate: 0.3%
- ECB rate: 0.0%
- Auto sales, US: 14.5 million
- Auto sales, EU: 12.9 million
- Unemployment, US: 8.1%
- Unemployment, EU: 9.1%
- Fed rate: 1.9%
- ECB rate: 2.9%
- Auto sales, US: 13.4 million
- Auto sales, EU: 13.5 million
- Unemployment, US: 5.8%
- Unemployment, EU: 6.0%
- Fed rate: 4.9%
- ECB rate: 2.0%
- Auto sales, US: 16.6 million
- Auto sales, EU: 14.8 million
- Unemployment, US: 4.6%
- Unemployment, EU: 7.1%
- Dizard, J. (2013, May 17). Fed hints at financial Heimlich manoeuvres. The Financial Times, online. Retrieved from www.ft.com
- Bureau of Labor Standards (US) Statistics. Retrieved from http://data.bls.gov/timeseries/LNS14000000
- ECB Data. Retrieved from http://www.ecb.int/stats/monetary/rates/html/index.en.html
- Eurostat Data. Retrieved from http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Unemployment_statistics
- Federal Reserve Data. Retrieved from http://www.federalreserve.gov/monetarypolicy/openmarket.htm#2008
- Henry, J. (2012, Dec 30). US Auto sales, profits are up for 2012. Forbes, online. Retrieved from http://www.forbes.com/sites/jimhenry/2012/12/31/u-s-auto-sales-profits-are-up-for-2012/
- Krebs, M. (2008, Jan 4). US Auto sales, profits are up for 2012. Edmunds Auto Observer, online. Retrieved from http://www.edmunds.com/autoobserver-archive/2008/01/2007-a-historic-year-for-us-vehicle-sales.html
- Krueger, V. (2012, Oct). Global Light Vehicle Overview. LMC Automotive for Standard and Poors. Retrieved from http://www.standardandpoors.com/spf/upload/Ratings_EMEA/Auto_London_2012.pdf
- Mackintosh, J. (2013, April 30). The first signs of the bears giving up. The Financial Times, online. Retrieved from www.ft.com
- Mackenzie, M. (2013, May 17). Those partying with easy money of QE will suffer the hangover. The Financial Times, online. Retrieved from www.ft.com
- Reynard, S. (2012, May 17). Assessing potential inflation consequences of QE after financial crises. Peterson Institute for International Economics, online. Retrieved from http://www.iie.com/publications/wp/wp12-22.pdf
- Stein, J.C. (2013, Feb 7). Overheating in credit markets, origins, measurements, and policy responses. Board of Governors of the Federal Reserve System, online. Retrieved from http://www.federalreserve.gov/newsevents/speech/stein20130207a.htm
- Unattributed. (2013, Feb 14). What QE means for the world, positive sum currency wars. The Economist, online. Retrieved from http://www.economist.com/blogs/freeexchange/2013/02/what-qe-means-world
- Zumbrum, J., et.al (2013, May 1). Fed seen slowing stimulus with QE cut by end of this year. Bloomberg News, online. Retrieved from http://www.bloomberg.com/news/2013-05-01/fed-seen-slowing-stimulus-with-qe-cut-by-end-of-this-year.html
Sunday, March 31, 2013
Risk Analysis - EU Banking Union
There are approximately 6,000 banks spread across the 27 nations/member states of the EU. They are not subject to centralized supervision/regulation, not subject to a centralized resolution mechanism, nor protected by a centralized safety net. Basic probability theory would seem to suggest that 16% of these 6,000 banks should have little or no issues, 68% will muddle along, and a trailing 16% can be expected to struggle. The potential for a banking catastrophe to significantly impact the world's largest economy, which has a combined annual GDP of approximately 16 trillion USD, is exacerbated by a lack of unity regarding supervision and monetary policy.
Berlin, Paris, and London appear to be, in many ways, conflicted about this state of affairs. Politicians, of all nationalities, continually seek maximum flexibility in allocating resources to their supporters. Historical events such as the Hundred Years War, WWI, and WWII have left their mark upon European society as a whole however. With the recent events in Cyprus, Greece, Ireland, Portugal, and Spain fresh in everyone's mind, the European Central Bank gained provisional oversight for 150 banks on the 19th of March 2013. These 150 banks manage approximately 80% of the EU's assets. Economic and Monetary Union, defined by the European Commission as a single market with a common currency and monetary policy, continues to be a work in progress.
There are approximately 6,000 banks spread across the 27 nations/member states of the EU. They are not subject to centralized supervision/regulation, not subject to a centralized resolution mechanism, nor protected by a centralized safety net. Basic probability theory would seem to suggest that 16% of these 6,000 banks should have little or no issues, 68% will muddle along, and a trailing 16% can be expected to struggle. The potential for a banking catastrophe to significantly impact the world's largest economy, which has a combined annual GDP of approximately 16 trillion USD, is exacerbated by a lack of unity regarding supervision and monetary policy.
Berlin, Paris, and London appear to be, in many ways, conflicted about this state of affairs. Politicians, of all nationalities, continually seek maximum flexibility in allocating resources to their supporters. Historical events such as the Hundred Years War, WWI, and WWII have left their mark upon European society as a whole however. With the recent events in Cyprus, Greece, Ireland, Portugal, and Spain fresh in everyone's mind, the European Central Bank gained provisional oversight for 150 banks on the 19th of March 2013. These 150 banks manage approximately 80% of the EU's assets. Economic and Monetary Union, defined by the European Commission as a single market with a common currency and monetary policy, continues to be a work in progress.
- Barker, A. (2012, December 4). EU divided over banking union. The Financial Times, online. Retrieved from www.ft.com
- Brunsden, J. and Christie, R. (2013, March 19). EU Reaches Deal on ECB Oversight Powers Over Euro Area Banks. Bloomberg News, online. Retrieved from http://www.bloomberg.com/news/2013-03-19/eu-reaches-deal-on-bill-to-vest-ecb-with-bank-oversight-powers.html
- Davies, G. (2013, March 31). Preventing contagion from Cyprus. The Financial Times, online. Retrieved from www.ft.com
- Goyal, R., et al. (2013, February). A banking union for the Euro Area; SDN/13/01. International Monetary Fund, online. Retrieved from http://www.imf.org/external/pubs/ft/sdn/2013/sdn1301.pdf
- Kirkegaard, J.F. (2013, March 18). The Cyprus Bank Deal: What it Means. Peterson Institute for International Economics: Realtime Economic Issues Watch, online. Retrieved from http://www.piie.com/blogs/realtime/index.cfm?p=3461
- Landon, T. (2013, March 31). Calculating the impact of Cyprus's Bailout. The New York Times, online. Retrieved from http://www.nytimes.com/2013/04/01/business/global/calculating-impact-of-cypruss-bank-bailout.html?pagewanted=1&hp
- McCarthey, R. (2013, March 28). Breaking up is hard to do. Reuters Blog: Counterparties, online. Retrieved from http://blogs.reuters.com/felix-salmon/2013/03/28/counterparties-breaking-up-is-hard-to-do/
- Tugwell, P., et al. (2013, March 30). Bank of Cyprus's customers may lose up to 60% on deposits . Bloomberg News, online. Retrieved from http://www.bloomberg.com/news/2013-03-30/bank-of-cyprus-s-customers-may-lose-as-much-as-60-on-deposits.html
- Unattributed. (2012, October 19). Einigung über Bankenaufsicht: "Das ist doch kein Boxkampf". FAZ, online. Retrieved from http://www.faz.net/aktuell/politik/europaeische-union/einigung-ueber-bankenaufsicht-das-ist-doch-kein-boxkampf-11931189.html
- Unattributed. (2013, March 31). Economic and Monetary Union. European Commission, online. Retrieved from http://ec.europa.eu/economy_finance/euro/emu/
- Whelan, K. (2012, October 31). Euro Area Banking Union: Should Bank Supervision and Monetary Policy be Separated?. Forbes, online. Retrieved from http://www.forbes.com/sites/karlwhelan/2012/10/31/euro-area-banking-union-should-bank-supervision-and-monetary-policy-be-separated/
- Wolf, M. (2013, March 26). Cyprus adds to Europe's confusion. The Financial Times, online. Retrieved from www.ft.com
Tuesday, March 26, 2013
Risk Analysis - Cyprus
Memes such as Too Big To Fail, Privatize Gains and Socialize Losses, Casino Wirtschaft, and others attempt to describe the negative aspects of complex banking business models in a way that is simple and easily accessible to many.
Jeroen Dijsselbloem has been the public face of the EU's recent attempt to reapportion banking risk between sovereigns and the private sector...via a 'new' business model. He is a government minister from the Netherlands and the head of the eurozone group of finance ministers. In spite of this or perhaps because of this he is experiencing a tough fight and an uncertain outcome.
Memes such as Too Big To Fail, Privatize Gains and Socialize Losses, Casino Wirtschaft, and others attempt to describe the negative aspects of complex banking business models in a way that is simple and easily accessible to many.
Jeroen Dijsselbloem has been the public face of the EU's recent attempt to reapportion banking risk between sovereigns and the private sector...via a 'new' business model. He is a government minister from the Netherlands and the head of the eurozone group of finance ministers. In spite of this or perhaps because of this he is experiencing a tough fight and an uncertain outcome.
- Baker, L. (2013, March 25). Cyprus to shape future euro bank rescues: Eurogroup head. Reuters, online. Retrieved from http://www.reuters.com/article/2013/03/25/us-eurogroup-cyprus-dijsselbloem-idUSBRE92O10A20130325
- Chaffin, J. (2013, March 26). Cyprus to impose capital controls. The Financial Times, online. Retrieved from www.ft.com
- Höltschi, R. (2013, March 25). Zypern als Vorbote eines neuen Zeitalters? NZZ, online. Retrieved from http://www.nzz.ch/aktuell/wirtschaft/wirtschaftsnachrichten/zypern-als-vorbote-eines-neuen-zeitalters-1.18054164
- Kreijger, G. (2013, March 26). No signs of more bank withdrawals in eurozone: Dijsselbloem. Reuters, online. Retrieved from http://www.reuters.com/article/2013/03/26/us-eurozone-cyprus-dijsselbloem-idUSBRE92P0F320130326
- Lex. (2013, March 25). Cyprus: crossing the green line. The Financial Times, online. Retrieved from www.ft.com
- Mussler, W. (2013, March 26). Jeroen Dijsselbloem: Zwei Hüte für einen Minister. FAZ, online. Retrieved from http://www.faz.net/aktuell/wirtschaft/europas-schuldenkrise/jeroen-dijsselbloem-zwei-huete-fuer-einen-minister-12129100.html
- Onaran, Y. (2013, March 26). Cyprus capital controls first in EU could last years. Bloomberg News, online. Retrieved from http://www.bloomberg.com/news/2013-03-27/cyprus-capital-controls-first-in-eu-could-last-years.html
Saturday, March 23, 2013
Risk Analysis - Cyprus
An estimated 10 billion Euro bailout to be provided to Cyprus by 'The Troika' (European Central Bank, European Commission, and International Monetary Fund) is ensnared in regional energy, financial, geopolitical, and security concerns. China, Germany, Israel, Russia, Turkey, the EU, the UK, and the US all have competing and overlapping concerns regarding the structure and implementation of Cyrpus' bailout from the Troika and it's accompanying 5.8 billion Euro bail-in to be funded by bank depositors and investors. An estimated total of 15.8 billion euros is needed to recapitalize Cyprian banks and refinance it's national debt. The ECB is scheduled to cut off short term financing to Cyprus on the 25th of March if a deal cannot be reached by then.
An estimated 10 billion Euro bailout to be provided to Cyprus by 'The Troika' (European Central Bank, European Commission, and International Monetary Fund) is ensnared in regional energy, financial, geopolitical, and security concerns. China, Germany, Israel, Russia, Turkey, the EU, the UK, and the US all have competing and overlapping concerns regarding the structure and implementation of Cyrpus' bailout from the Troika and it's accompanying 5.8 billion Euro bail-in to be funded by bank depositors and investors. An estimated total of 15.8 billion euros is needed to recapitalize Cyprian banks and refinance it's national debt. The ECB is scheduled to cut off short term financing to Cyprus on the 25th of March if a deal cannot be reached by then.
- Davies, G. (2013, March 24). The Eurozone after Cyprus. The Financial Times, online. Retrieved from http://blogs.ft.com/gavyndavies/2013/03/24/the-eurozone-after-cyprus/
- Higgins, A. (2013, March 23). Russian Ties Put Cyprus Banking Crisis on East -West Fault Line. The New York Times, online. Retrieved from http://www.nytimes.com/2013/03/24/world/europe/russian-ties-put-cyprus-banking-crisis-on-east-west-fault-line.html?pagewanted=1&_r=0&hp
- Kanter, J. and Alderman, L. (2013, March 24). As Deadline Nears, Cyprus Scrambles to Devise a Bailout. The New York Times, online. Retrieved from http://www.nytimes.com/2013/03/25/business/global/cyprus-and-european-officials-scrambles-to-end-bank-crisis.html
- Mason, P. (2013, March 22). Cypriot Crisis: Will Germany's Tough Stance Backfire? BBC News, online. Retrieved from http://www.bbc.co.uk/news/world-21899515
- Panagiotidis, E. (2013, March 23). Drohende Staastspleite: Zypern Ringt Mit Der Zwangsabgabe. NZZ, online. Retrieved from http://www.nzz.ch/aktuell/international/zypern-ringt-mit-der-zwangsabgabe-1.18052501
- Pardo, P. (2013, March 24). Tres razones por las que Chipre si' importa. El Mundo, online. Retrieved from http://www.elmundo.es/elmundo/2013/03/24/economia/1364108419.html
- Charlemagne. (2013, March 23). Small Island, Big Finger: Cyprus's rejection of a bailout plan raises new doubts about the future of the Euro. The Economist, online. Retrieved from http://www.economist.com/news/europe/21574006-cypruss-rejection-bail-out-plan-raises-new-doubts-about-future-euro-small-island
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