monetary policy

Low % rates and “bubble” in the real estate market

based on the Monetary policy was not to blame
first you need to notice, what are the rules for % rates are derived mainly from the inflationary gap and the unemployment gap (differences between actual values ​​and target values). estimated % rates are derived from "achieving full employment with minimal inflationary pressures". wherein, in fact, % rate has a lot more function (like monetary policy itself) – do not forget about the external sector, financial stability, etc..

also it should be noted, that the application of universal rules for the small open economy and the large open economy and the micro-open economy (for which an independent monetary policy exists only in the case of restrictions on the movement of capital – which already contradicts the idea of ​​an open economy). that's why, before seeing the revealing evidence, it is worth remembering the limited conclusions;)

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monetary policy: according to Taylor's rule and in fact:

 
Further: "Not high enough" and property prices

Further: "Not high enough" and real estate investments

now surprise: Real % real estate rates and prices

On the one side, it can be argued, what % US rates are setting the architecture of rates around the world, but find a link between the rise in prices in Ukraine and % US rates. Real estate boom in Ukraine – function of the underdevelopment of the financial market, underdevelopment of the real estate market and capital inflows in the banking sector. Capital inflows into our banking sector – it is a function of the rate of increase in raw material prices, which is a function of the growth rate of emerging markets. And the growth rate of emerging markets is leading to …. ouch, excess savings – decrease in long-term % rates in the US and spurring a boom in the real estate sector, which I already find due to securitization, many years of subsidizing the real estate market for the poor and euphoria that is transmitted across borders and restrictions on capital flows…

China liquidity crisis

You must have heard, what China's banking system liquidity at dangerous levels.
This is what the picture looks like in a larger perspective.. Certainly, economies of scale are always present (ie. if the rate is low by historical standards, This means nothing. What matters is, how much it has grown and how long it has been at low levels before). But pay attention, volatility in the value of money during periods of inadequate boom, and nothing, survived the same.

no one removes the issue of debts of municipalities of course, but that's another story.

what will the ECB do if …

anything can happen, although for a while everything should be ok. really who knows these European politicians)
the question is: happen that, will the ECB be able to support debt markets by buying bonds??

the answer is rather negative.
* The ECB initially did not really want to trade like that
* The Bundesbank exploded with thunder and lightning over this
* it seems like the ECB will gladly fuse the purchased & quot; to the European fund"
* from some comments the position of the ECB is clear – we are more & quot; of this" we will not do

stress tests are unlikely to show anything unpleasant, but many are waiting, that after the publication itself, the markets will hit growth, as well as after the publication of the American stress tests. it seems like nothing happens twice the same)

Nomura did her stress tests based on such conditions:
* NPL grows in 3 Times
* los – 50%

about zero probability of recession

I think, that many have seen a graph of the likelihood of a recession (here)

Krugman is good answer, which affects the instruments / indicators that are used for calculations. there is a fairly common set, including the `` slope of the yield curve ''.  when long stakes are higher than short stakes – this is a sign of a normal situation, when the short ones get to the long ones – the loud step of the approaching recession.

I don't quite agree either, what in our case hides behind the normal shape of the curve, something more than normalization of processes. not ready to jump into distant conclusions about, that monetary policy is not working now, but she's definitely not what she was before.

go back a year. how many of you / us believed in high inflation today, or into sustained deflation in 2008 also in 2007 year? who believed in that, that the current rates on long-term securities will be at this level in 2009? some respected people generally like to write about the bubble in the US government debt market (bubble, not a pyramid, which is not the same).

United Kingdom

The Office for Budget Responsibility is created in Britain (GIANT) – this (not)dependent organization (sorry, I could not resist. I can't believe that, that this is not a political move) which will issue budget forecasts. Here their website, and here they are first document. The document is large and takes time to read. At the moment it is important to know, that the forecast for economic growth was underestimated (pier, the previous government deliberately inflated forecasts. somewhere we already heard it ..). By the way, tax revenues improved slightly, which slightly reduced the need to issue debt, what the markets liked very much.

Here is a basic prediction.

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What you want to pay attention to first of all, this is the GDP gap.

As seen from the graph, previous prediction of the bad guys" was slightly worse. At this point we turn to the second British topic. – Inflation.

For now, a few words about the GDP gap. Much of the gap calculation is based on unemployment. But, in post-boom periods, some jobs go away forever, What means, that the full load of resources based on the new structure of the economy will be less, than when basing on the old pre-bubble structure.

From here – Central Bank expects, that inflation will be low since the GDP gap is large. If the Central Bank overestimates the size of the negative gap, then the reaction to inflationary pressures will be belated. By the way, this is the most real reason to be afraid of high inflation., not monetary – look in the forum, afraid, but we don't think.

What happens to inflation.

1) The Barclays Survey of Inflation Expectations (BASIX) – inflation expectations survey showed, what are the british waiting for 3,4% in a year, in two years 3,8% what is the maximum with 1995 of the year.

2) UK inflation will be published tomorrow, all kinds of rumors are crawling around the market about, that rising expectations – this is what pushes inflation up, therefore the Bank of England will think and do something.

and now, little delight from the Bank of England – a graph of how expectations and actual figures compare (By the way, for the US, expectations are even less useful).

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And the third. Bank of England started buying commercial paper again (short-term financing facility for the non-financial sector)!

The Bank itself said:
Although there were no asset purchases financed by central bank reserves, the Bank continued to purchase sterling commercial paper and operate as a buyer and seller in the sterling corporate bond market, with net purchases financed by the issuance of Treasury bills.

Ie. no QE, just needed to support the market in difficult times. But still, interestingly;)

GDP gap in Asia

as always, accidentally stumbled upon a chart, under which there were several thoughts.
do not like 2 pieces:

1) Asian Central Banks stubbornly look at other Central Banks, no one in asia wants to raise rates before, how the FED will do it (why is that – I don't know, but this is how all investment houses have been writing since autumn 09 of the year. No, of course there is sound logic in this, but just to be so fanatical ..). if rate hikes in the developed world are pushed back a couple of quarters (which, by the way, is also not so obvious), then the rate hike in Asia may be postponed. for the sake of mercy, it should be noted, that besides directly rates, there are many ways to tighten monetary / fiscal policy.

2) there may be problems with counting it and it is underestimated. for example, we take the loading of production facilities in China and consider, that she should be at least 80%. maybe, in fact, there's only 30-40 – this is already the norm, because some of them are a) just go to junk, b) set up in advance. eventually, the real gap is already much higher. (in developed economies vice versa, there is a risk of overestimating the GDP gap).

MORGAN STANLEY rolled over

remember such a wonderful picture from MS? disagree, what should have expected the growth of rates when the morgana were waiting for it,
but one could expect a curtailment of incentives and, in general, a tightening of fiscal policy, plus a really rise in rates in emerging and commodity economies. so I didn't really mind the & quot; we are here & quot;.

pity, that there is no drawing at hand, but before 2010 morgan (the one who was standing) had one of the most negative views on corporate profits, most bulish was another morgan, which G.P. Morgan.

now it's a surprise:Morgan Stanley now estimates that Standard & Poor’s 500 profits will grow 35% in 2010, Citi expects 26% and the consensus of the analyst community calls for 31%.

something like the reasons here:
Recent global uncertainties have made it likely that major economies will continue providing ‘XXL liquidity’ (links from[info]klyuka_artem )

and some more fun from Morgan.
10% corrections happen once a year. main reasons:
1) acceleration of inflation (not now)2) decline in profits (not now, times growth by 35%)
3) Irrational exuberance (not now, In general, few people believed in shares)

what confuses, this is ignoring fiscal tying.
for some reason, rumors about the second Chinese package in the summer come to mind,
although he seemed absurd in the spring, but it's worth being afraid of..

UPDATE: picture with predictions street start ode to profit

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