Before the last ECB meeting, we could wish that several ECB council members were determined to fight the deflationary threat in the Euro zone southern countries (figure 1). For instance, the last surprise move of the ECB refi rate down to 0.25% seemed to show that the ECB wanted to move towards a proactive quantitative [...]
Risk Parity strategy or more accurately risk balanced allocation is a methodology which consists in allocating risk to assets classes rather than capital.
An example is presented below for an unleveraged portfolio. A leverage (for example multiplying all allocations by a factor 2) may be used to match the performance of traditional asset allocation portfolios.
Recently, some high profile investors worried about stocks bubbles which could have been fostered by Central Banks’ quantitative policies. These bubbles would threaten to implode once Central Banks would withdraw assets purchase programs. From a fundamental point of view, the bubble on US equities is more about the historically high equities’ profit margin rather than [...]
Italy is the clearest loser of the euro zone crisis. Since 2010, the country has suffered from an overvalued currency and absurdly high private and public debts’ interest rates given its positive primary fiscal balance (before payment of interest rates).
As showed in figure 1, the borrowing costs of Spain and Italy depend much more on [...]
Chinese equities have clearly underperformed other equities, particularly developed countries. As a matter of fact, the Chinese economy represents more than 13% of worldwide GDP but only 2% of worldwide market capitalization. The price to book of Chinese equities stands at 1.4 vs. a price to book at 2.5 for US equities. The excessive bubble [...]
Since 2011, equities from emerging markets have been the poorest assets performers together with commodities. They are the only assets which have not benefited from the monetary stimulus undertaken by developed central banks. Ironically, emerging assets are also the most exposed to the withdrawal of quantitative easing policies, notably the so called “tapering” hinted by [...]
The most important achievement of Abenomics thus far is probably the turnaround of public debt dynamics.
This has not been achieved by austerity (the path taken by the Eurozone, with little success so far) but by increasing the gap between nominal growth and interest rates. Namely, the fiscal and monetary stimuli have raised real growth and [...]
An argument which is often heard is that:
“Bonds are dead for the long run. The price of bonds has been supported by a long run decrease in interest rates which started in the 1990’s and lasted until the aftermath of the big financial crisis, i.e. 2012. As the lasting recovery enables the OECD countries to [...]
October 13, 2013
On Oct 17, all the means will have been exhausted to avoid a default on US government’s payments.
There are two types of payments that may be cut: interests on treasury bills, spendings on programs like Social Security, Medicare, Medicaid, which account for the majority of federal spendings other than defense and interests.
The consensus [...]
Global correlations have decreased in every type of asset. The correlations have decreased within equities and commodities as illustrated by figures 1 and 2. The decline of correlation is all the more remarkable on commodities as it reached the level which prevailed before the financial crisis.
The decrease of correlation in every type of asset has [...]