Archivo de la Categoría ‘Financial Markets’

19
Mar

Should Greenspan have a blog?

Escrito el 19 marzo 2007 por Juan Toro en Financial Markets

Many in Wall Street, the media and the government have disagreed on Greenspan publicly providing forecasts on the economy. According to Greenspan, there is 33 % percent of probability that this year the US will go into a recession within the year. Where did he get this from? Which dice did he use to calculate that probability? Probably just a dice with six faces and recession written on two of them. Markets moved and surely Bernanke was not very happy. Bernanke wants transparency. But how can this be done with these interferences. His probability assessment came two weeks ago, but this week he extended his road show and in Boca Raton he extended his comments. Greenspan said that subprime problems will spill over to other sectors. The Dow Jones got a hit but it soon recovered.

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18
Mar

Last years the boom of real state prices helped raising household wealth, pushing consumption spending with it. Rising housing prices and lower interest rates have increased the borrowing capacity of households. The increase in borrowing (collaterized against houses) has surpassed the net new spending on housing assets. This is the so-called housing equity withdrawal. People have drawn part of the equity in their housing stock and used those funds for other purposes (consumption). When housing prices start falling, equity withdrawal cannot continue and consumption is negatively affected.

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16
Mar

Mortgage problems might extend to Europe:

Escrito el 16 marzo 2007 por Juan Toro en Financial Markets

The US sub-prime mortgage market is facing ups and downs. This is unraveling in the form of: higher delinquency rates, defaults of many of the owners, more than one million people losing their homes, banks owning bad debts (debt collaterized on the faulty home loans), reassesment of risk,

14
Mar

The sell off and the principle of diversification:

Escrito el 14 marzo 2007 por Juan Toro en Financial Markets

The recent sell-off in the stock market has put into question a cornerstone principle of modern finance: the principle of diversification. At least this is the way that The Economist magazine saw it (the Buttonwood column). The article appearing this week points out that investors could have diversified very little as most markets plunged. Even the gold market always considered as a safe haven suffered a correction. The only portfolio that could have outweighed some losses from the market rout (at least partly) would have one holding treasuries. The article expresses a worry on the fact that this could be still an issue if we face further financial turbulence.
This view is somewhat flawed.

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12
Mar

Subprime lending and the stock market rout

Escrito el 12 marzo 2007 por Juan Toro en Financial Markets

Subprime mortgages and carry trades have been the two nasty words surrounding the recent sell off in the financial markets. The panic was not coming so much on the fall of the Chinese stock market but on the fact that an increase in risk aversion could have ugly consequences in the credit and the foreign exchange market.

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8
Mar

The state of the Hawkometer

Escrito el 8 marzo 2007 por Juan Toro en Financial Markets

In a previous post we defined and explained the hawkometer. This is measure of the monetary policy stance by a Central Bank. Sigma Derivatives an independent news provider, offers on a regular basis a measure of the hawkometer. In their latest report they show that in the European Central Bank (ECB) the tone of hawkishness has increased going from 5.2 in January to 6.5 in February (see picture below). This reveals a general support for the forthcoming 25 point increase this week and for further tightening to go after March. This message is in agreement with the markets. In Europe markets are pricing in almost 100% of a 25bp for this week

7
Mar

How wealthy you need to be in order to invest:

Escrito el 7 marzo 2007 por Juan Toro en Financial Markets

Generally, consumers are free to invest in no matter what asset they are interested in. However consumers need to be either wealthy enough or have limits on the amount they can invest in some specific set of assets, such as hedge funds.

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21
Feb

Housing prices are falling is the US. Where else?

Escrito el 21 febrero 2007 por Juan Toro en Financial Markets

Despite a wide consensus of housing overpricing (real state in general) almost in any national market, prices seem resilient. Contrary to expectations we have hardly seen any significant price correction recently. In mid 2006 Nouriel Roubini from New York University declared:

20
Feb

Shareholders’ Activism and Firm Performance

Escrito el 20 febrero 2007 por Juan Toro en Financial Markets

Last week the IE hosted a Research Workshop on Corporate Governance attended by top scholars on the field of finance. Among the topics discussed, presentations dealt with the classical agency problems that exist in the boardrooms/shareholders relationship and the relationship between activism and performance.

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14
Feb

Nothing to worry about

Escrito el 14 febrero 2007 por Juan Toro en Financial Markets

This is the main idea transmitted in the Fed Chairman Bernanke’s Senate Banking Testimony. Ben Bernanke presented a rosy picture of the US economy. Growth slightly below trend, housing sector correction not to worry about and inflation in control though still needs some

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