The infectious and mortality rates of the new coronavirus have become the main force driving the pendulum of investor sentiment toward fear. The move is all the more dramatic as the investors had been positioned for a continuation of the historic bull market in equities and eager to take on new risks. The coronavirus has …
I know some people who are always bullish gold. I am not. In fact, I often think I can find higher returning assets. However, I have recently have turned bullish gold, and while in Toronto on business, I was invited to the set of Bloomberg to discuss my change of heart. Many of the reasons …
In our understanding of foreign exchange determinants, we attribute a privileged role for the policy mix–the combination of monetary and fiscal policy. The best policy mix for a currency is when monetary policy is tightening, and fiscal policy is loosening. Notable examples include the Reagan-Volcker dollar rally of the early 1980s and the German policy …
The US is undertaking a great experiment. What happens when a large serving of fiscal stimulus is provided to an economy that as already growing above trend, with nearly full employment and price pressures near target? Judging from the recent string of data, including Q1 GDP, the effects of the tax cuts are not yet …
Build It and They Will Come; Sell it and It will be Bought Read More »
Many observers saw Canada as one of the canaries in the coal mine, warning that the divergence theme was over. The Bank of Canada did hike rates twice in Q3. The Federal Reserve did not hike at all. Isn’t that the definition of convergence? Yes and no. The Bank of Canada’s rate hikes were not …
The best policy mix for a currency is an expansionary fiscal policy and less accommodative monetary policy. It is the US policy mix of the Reagan-Volcker era of the early 1980s. It was the German policy mix after the Berlin Wall fell. It is as if the government has its foot on the accelerator and …
The Bank of International Settlement asks in its quarterly report if there has been “a paradigm shift in the markets?” Although it does not provide an explicit answer, it does argue that there has been a significant change in sentiment. The chart of the US 10-year yield, created on Bloomberg, depicts the 35-year decline in …
The US policy mix is changing. The trajectory of fiscal policy is toward more stimulus, while the trajectory of monetary policy is toward less. That policy mix, expanding fiscal policy and less accommodative monetary policy is typically associated with an appreciating currency. There are two big examples of this. The first is the Reagan-Volcker policy …