Will financial markets climb the summer wall of worries?

Posted on 22. Jul, 2013 by Jean Jacques Ohana in Weekly Focus

Three vulnerabilities are presently threatening the financial system:

The ongoing negative spiral on US Bonds (figure 1). Ben Bernanke made a U turn on the Federal Reserve pledge to reduce the purchase of US Treasuries thus enabling long term interest rates to fall back slightly. Meanwhile, the Federal Reserve will be under pressure to taper the [...]

Bond bubble or new normal?

Posted on 27. May, 2013 by Jean Jacques Ohana in Weekly Focus

As Ray Dalio put it in a key note about deleveraging, the key variable of deleveraging is the difference between the nominal growth and the nominal cost of debt. Provided that interest rates are maintained below the nominal growth for a long period of time, any country can eventually succeed in alleviating its debt burden. [...]

In 2013, we will rather be the fox than the hedgehog

Posted on 07. Jan, 2013 by Jean Jacques Ohana in Weekly Focus

One of our resolutions for 2013 is to avoid making bold predictions on what stocks, bonds, commodities or exchange rates will look like this year.

We take this resolution for two reasons.

The first has to do with the lack of scientific grounding on which to base one-year-forward market predictions. Based on the data provided by Shiller [...]

US Treasuries buyers are not the fools they look like

Posted on 17. Dec, 2012 by Jean Jacques Ohana in Weekly Focus

Judging from Riskelia’s score, purchasing US T Notes is a promising bet (figure 1). At 1.70% nominal yield, this investment may look foolish. However, looking closer at the dynamics of the real yield (the difference between nominal yield and year on year change in inflation), we can see that the real yield is far from [...]

How to invest in a trendless environment?

Posted on 15. Oct, 2012 by Jean Jacques Ohana in Weekly Focus

Following coordinated political interventions and successive Central Banks liquidity injections to stabilize the financial system, financial markets are more constrained than ever.

Following the EURCHF floor set up by the SNB, several currencies pairs have been stuck in tight ranges (EURNOK, EURSEK, USDBRL, USDJPY …). The near zero rates environment is an attractor magnet which constrains [...]

Inflation maybe, but not for everyone: a tale of five different “deleveragings”

Posted on 17. Sep, 2012 by Jean Jacques Ohana in Weekly Focus

Nothing is more different from a QE…than another QE…

In a captivating piece, Ray Dalio (Bridgewater Associates) explains that the differences between how deleveragings are resolved depend on the amounts and paces of 1) debt reduction, 2) austerity, 3) transferring wealth from the haves to the have-nots
and 4) debt monetization.

When looking at the deleveragings of the [...]

The euro zone crisis: you can’t hide elephants in mouseholes

Posted on 17. Aug, 2012 by Jean Jacques Ohana in Weekly Focus

August 13, 2012
Mario Draghi recently intervened on behalf of the ECB, compensating for the current lack of political incentives across Europe. He announced an operation to support the short-term obligations of the Euro zone countries. This modest objective is by no means comparable to the Fed’s Quantitative Easing operations. The long lasting crisis affecting the [...]

The big winner is moral hazard, the big loser may be the euro vs. gold

Posted on 25. Jul, 2011 by Jean Jacques Ohana in Weekly Focus

The umpteenth euro bailout plan has been greeted by the markets as a major step towards financial stability but will certainly not be the last one as the structural debt issues have still not been addressed. The big winner of this dramatic mess is moral hazard whereas the big loser will probably be the euro [...]

The future of the current deleveraging: soft landing or depression?

Posted on 01. Jun, 2010 by Steve Ohana in Weekly Focus

We had signaled the expansion of massive financial bubbles on multiple risky asset classes since 2009: equities, corporate credit, depletable commodities, emerging debt and carry trades. Unsurprisingly, these dangerous patterns unfolded into a global deleveraging, as demonstrated by the chart below:

The last four instances we experienced such a deleveraging were in 2000, 2004, 2006 and [...]

The Greek bailout: a poker game between Europe and debt holders

Posted on 03. May, 2010 by Jean Jacques Ohana in Weekly Focus

The European countries announced with great pomp that the giant rescue plan for Greece has been finalized. The plan consists in 110 Bil EUR endorsed by the European countries for 80 Bil and by the IMF for the remaining part. The loans will be freed as soon as next week before the redemption of the [...]