Wednesday, May 20, 2015

Art market is example of frothiness in markets

What I'm seeing is that these asset prices, even for art ... is a signal of how many asset prices are too high today.

Monday, May 18, 2015

Markets not in a bubble yet

As the economy recovers, as inflation goes higher, gradually long-term interest rates are going to go higher. In the short run, lack of market liquidity, lack of market makers can imply that when there are some surprises—economic and otherwise—or inflation, then you're in a very volatile environment for bond yields in the U.S. and Europe

Soon enough asset reflation can become asset inflation, asset inflation can become asset frothiness and eventually you have asset and credit bubbles."

My worry is the real economy justifies a slow exit—low inflation, still low growth, unemployment is still high—but then all this liquidity is going to go to asset inflation and eventually in frothiness and financial bubbles.

Read more at:

Wednesday, May 13, 2015

Canada housing market correction could happen but not a bubble

The similarities are that there has been a good deal of home price inflation. There are increases in household debt related to mortgages.

But there are differences related to your financial system, which is slightly better regulated and supervised. So the excesses of subprime lending that occurred in the United States have not occurred in Canada.

In the U.S., a massive glut of supply led to the prices falling. Here, especially in Vancouver, some of the demand is driven by foreigners coming from Asia and buying property as a long-term investment. That demand is going to stay.

So I wouldn’t say the Canadian market is in a bubble. I would say there is some frothiness in terms of excessive price inflation and the valuation of homes compared to rentals.

I don’t see a housing bust in Canada. But there may be some correction in prices.

Monday, May 11, 2015

More Women in business needed

"There has been progress in the direction of gender equality, but it’s still very limited. The case for having a stronger role of women in the business world is compelling. Lots of work has been done, but more needs to be done."

On women's pay slowly increasing compared to men's pay 

"But it’s too slow. At the present rate, it will take 80 years to reach full equality"

Monday, May 4, 2015

USA re-enters currency war

In a world of weak domestic demand in many advanced economies and emerging markets, policy makers have been tempted to boost economic growth and employment by going for export-led growth. This requires a weak currency and conventional and unconventional monetary policies to bring about the required depreciation.

Since the beginning of the year, more than 20 central banks around the world have eased monetary policy, following the lead of the European Central Bank and the Bank of Japan. In the eurozone, countries on the periphery needed currency weakness EURUSD, -0.32%  to reduce their external deficits and jump start growth.

But the euro weakness triggered by quantitative easing has further boosted Germany’s current-account surplus, which was already‎ a whopping 8% of gross domestic product last year. With external surpluses also rising in other countries of the eurozone core, the monetary union’s overall imbalance is large and growing.

In Japan, quantitative easing was the first “arrow” of “Abenomics,” Prime Minister Shinzo Abe’s reform program. Its launch has sharply weakened the yen USDJPY, +0.00%  and is now leading to rising trade surpluses.

The upward pressure on the U.S. dollar from the embrace of quantitative easing by the ECB and the BOJ has been sharp. The dollar has also strengthened against the currencies of advanced-country commodity exporters, like Australia and Canada, and those of many emerging markets. For these countries, falling oil and commodity prices have triggered currency depreciations that are helping to shield growth and jobs from the effects of lower exports.

The dollar has also risen relative to currencies of emerging markets with economic and financial fragilities: twin fiscal and current-account deficits, rising inflation and slowing growth, large stocks of domestic and foreign debt, and political instability. Even China briefly allowed its currency USDCNY, -0.05%  to weaken against the dollar last year, and slowing output growth may tempt the government to let the renminbi weaken even more. Meanwhile, the trade surplus is rising again, in part because China is dumping its excess supply of goods — such as steel — in global markets.

Until recently, U.S. policy makers were not overly concerned about the dollar’s strength, because America’s growth prospects were stronger than in Europe and Japan. Indeed, at the beginning of the year, there was hope that U.S. domestic demand would be strong enough this year to support GDP growth of close to 3%, despite the stronger dollar. Lower oil prices and job creation, it was thought, would boost disposable income and consumption. Capital spending (outside the energy sector) and residential investment would strengthen as growth accelerated.

But things look different today, and U.S. officials’ exchange-rate jitters are becoming increasingly pronounced. The dollar appreciated much faster than anyone expected; and, as data for the first quarter of 2015 suggest, the impact on net exports, inflation, and growth has been larger and more rapid than that implied by policy makers’ statistical models. Moreover, strong domestic demand has failed to materialize; consumption growth was weak in the first quarter, and capital spending and residential investment were even weaker.

As a result, the U.S. has effectively joined the “currency war” to prevent further dollar appreciation. Fed officials have started to speak explicitly about the dollar as a factor that affects net exports, inflation, and growth.‎ And the U.S. authorities have become increasingly critical of Germany and the eurozone for adopting policies that weaken the euro while avoiding those — for example, temporary fiscal stimulus and faster wage growth — that boost domestic demand.

Moreover, verbal intervention will be followed by policy action, because slower growth and low inflation — partly triggered by a strong dollar — will induce the Fed to exit zero policy rates later and more slowly than expected. That will reverse some of the dollar’s recent gains and shield growth and inflation from downside risks.

Currency frictions can lead eventually to trade frictions, and currency wars can lead to trade wars. And that could spell trouble for the U.S. as it tries to conclude the mega-regional Trans-Pacific Partnership. Uncertainty about whether the Obama administration can marshal enough votes in Congress to ratify the TPP has now been compounded by proposed legislation that would impose tariff duties on countries that engage in “currency manipulation.”

If such a link between trade and currency policy were forced into the TPP, the Asian participants would refuse to join.

The world would be better off if most governments pursued policies that boosted growth through domestic demand, rather than beggar-thy-neighbor export measures. But that would require them to rely less on monetary policy and more on appropriate fiscal policies (such as higher spending on productive infrastructure). Even income policies that lift wages, and hence labor income and consumption, are a better source of domestic growth than currency depreciations (which depress real wages).

The sum of all trade balances in the world is equal to zero, which means that not all countries can be net exporters — and that currency wars end up being zero-sum games. That is why America’s entry into the fray was only a matter of time.