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Sunday
Oct192014

Another Eurozone Crisis Ahead?

Calamities happen in financial markets, and usually when investors least expect and are least prepared for it. In the euro area, weak growth in the past six months and the inability of the ECB's measures to turn asset markets arounds have led investors to, once again, revisit their sovereign debt crisis playbooks. 

This is understandable, but also now raises a fundamental question. If we are about to tumble into round 2 (or 3?) of the sovereign debt crisis, Eurozone bears may still prevail holding on to the recent trend in equities. But if we are not, the only trade that currently makes sense is to buy equities and short benchmark bonds in the euro area. Narrow money growth and ECB easing would indicate this to be a good bet, but the lack of sovereign QE amid increasingly nervous price action in peripheral bonds point to investors staying firmly on their shorts. 

 Place your bets! 

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Picture is courtesey of Pantheon Macroeconomics and has also been posted on Twitter. 

Wednesday
Sep172014

Where Are My Foreign Assets When I Need Them? 

How do you show the challenge of the eurozone periphery in one chart? Well, it is difficult but the representation below is a good pick in my view. A structurally negative net foreign asset position is a very tough hurdle to overcome when in a currency union, saddled with poor demographics and need net external demand to boost national income. Think of the periphery as Japan and Germany without(!) the strong net foreign asset position. 

These countries seem to have grown old before getting rich and without the ability to devalue in nominal terms, the outlook is not good. 

 

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Picture is courtesey of Pantheon Macroeconomics and has also been posted on Twitter. 

Monday
Sep152014

The Italian Economy Remains Stuck ...

Italy has the dubious honor of the being the first eurozone economy to re-enter recession after the decidedly tepid recovery since 2012. This is bad news for an economy struggling with steadily increasing government debt and no real solution on how to pay off its mounting liabilities. What is even worse is that it looks as if the economy is not about to exit its malaise anytime soon.

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Picture is courtesey of Pantheon Macroeconomics and has also been posted on Twitter.