Just ditch forward guidance 10 Mar 2014 Central banks’ long-range rate forecasts prod excessive financial risk-taking and may slow necessary tightening, says the Bank for International Settlements. Forward guidance fails the risk-reward test. Although the BIS didn’t say it, the policy just doesn’t stack up.
Hugo Dixon: EU’s half-baked bank union could work 10 Mar 2014 A banking union wasn’t strictly needed to solve the euro zone’s problems and what has been agreed isn’t even what the designers wanted. That said, with a few changes, it could be turned into something that is fit for purpose.
Display IPO offers turnaround lesson for Japan Inc 10 Mar 2014 Two years after scrunching together unloved parts of Sony, Toshiba, and Hitachi, Japan Display is raising up to $3.8 bln. The smartphone screen maker is an example of successful government intervention. But the model and its high-resolution returns will be hard to replicate.
S&P 500 shows optimism despite still subpar jobs 7 Mar 2014 Friday’s report leaves the U.S. with 666,000 fewer working citizens than in early 2008. Yet the stock market hit a record on Thursday, five years after its nadir. It’s a reminder that America’s recovery has so far benefited Main Street a lot less than it has helped Wall Street.
Review: Why all you know about money is wrong 7 Mar 2014 Felix Martin says that money isn’t a commodity, but a system of credits. This insight allows his book to rewrite monetary history in an eye-opening way. It also suggests that the way economists approach finance and recessions is hopelessly wrong.
Italy’s Renzi off to a bad start 6 Mar 2014 Matteo Renzi has been forced to amend his electoral reform. The result could mean that Italy will remain ungovernable. The new prime minister’s hand is weaker, even though the risk of early elections has subsided. And serious economic reforms will be harder.
China’s first bond default will hit in three waves 6 Mar 2014 If Chaori Solar fails to pay interest on March 7, as expected, what then? Investors will be deprived of cash, banks will have to mark down some of their holdings, and new issuers will have to pay more. Though a default is overdue, the aftershocks should not be underestimated.
Search for China’s “Bear Stearns moment” is flawed 6 Mar 2014 The country’s possible first bond default has prompted comparisons with the Wall Street firm’s failure. It’s tempting for investors to seek parallels with 2008. If the analogy fits at all, it’s only because it reminds the Chinese authorities which mistakes to avoid.
BoE suspension underscores FX market limbo 5 Mar 2014 The central bank has suspended an official as it probes who knew what about alleged foreign exchange rigging. Being transparent may help avoid the mess it got into with Libor. But the move does not address the pressing need to clarify what is acceptable practice in FX.
Energy titans tap yet another dry well: inequality 5 Mar 2014 The industry’s grandees are gathered for their annual confab in Houston, celebrating shale and lamenting higher costs. Amid the hoopla, Chevron CEO John Watson said renewable policies hurt the poor while BHP boss Andrew Mackenzie claimed oil can help them. That’s all a bit rich.
Bondholders will have to pay for Ukraine’s reset 5 Mar 2014 The country’s bonds keep sinking in spite of an upcoming IMF package. Creditors are facing either a soft debt rescheduling or more radical haircuts. The risks of austerity, devaluation and continued political uncertainty all point to the latter. Market prices still look rosy.
Singapore is not the world’s most expensive city 5 Mar 2014 A survey that labelled the city-state the world’s costliest place to live suffers from a flawed methodology. Measuring the price of bread or petrol in U.S. dollars is not the right comparison. Consumers care about quality of life - in the currency in which they earn their living.
Chinese solar troubles go deeper than debt 5 Mar 2014 LDK Solar is trying to avoid the fate of bankrupt rival Suntech. Yet even if it could restructure away its debts, LDK’s high costs make it look uncompetitive. Peers like GCL Poly seem overvalued, pricing in a solar renewal that may not last.
Markets too bullish on Putin’s mind games 4 Mar 2014 The Moscow stock market rose more than 5 pct after President Vladimir Putin seemed to tone down his rhetoric on Ukraine. After a 10 pct fall the day before, investors focused on the good news. They may have misinterpreted the Russian leader’s cryptic pronouncements.
CoCo pricing looks a little loco 4 Mar 2014 The newish market in contingent capital bonds is growing fast. But when it comes to pricing, it is immature. One example: investors ignore the way credit risk increases with maturity. Time may iron out pricing inefficiencies. The risk is that reality dawns after a sudden shock.
Talk of Russian asset freeze is empty rhetoric 4 Mar 2014 The U.S. and Europe are mulling a freeze on the western assets of Russian officials to punish Vladimir Putin’s actions in Crimea. That would be impossible to do legally and fairly. Better address the core of the problem: banks’ eagerness to accept shady money from Russia.
China’s savviest developer shows property strains 4 Mar 2014 SOHO’s earnings fell 47 percent in the second half of 2013. A shift from sales to letting means cash flows are dwindling. When the most financially sophisticated players show cracks, it’s time to worry. At least SOHO’s lenders are supportive. Lesser rivals may be less fortunate.
Sun Art shows foreign retailers can crack China 4 Mar 2014 The French-Taiwanese hypermarket operator boosted net profit by 15 percent last year, even as rival Wal-Mart struggled on the mainland and Tesco pulled out. Tight control of operating costs was crucial to its success. Encroaching online rivals make that all the more important.
U.S. is minimum-wage laggard given its prosperity 3 Mar 2014 With Washington considering a higher pay floor and Peru’s prime minister losing his job over the issue, a Breakingviews analysis shows global minimum wages as a percentage of per-capita GDP vary widely. By this measure, the U.S. and, say, Mexico have plenty of space to lift pay.
Slicing the cake better can make it bigger 3 Mar 2014 A new IMF study finds inequality makes economies smaller. Efforts to redistribute income may make growth higher and more sustainable. That looks right. But the challenges are huge. Governments must be honest and get the policies right. The study’s lessons could be misapplied.