The FT has a ‘long read’ article on Brazil’s President. The article darkly hints at the possibility of the return of military rule in Brazil. To be fair, the article does quote, more than once, some former Army Officers dismissing that possibility. What was interesting to me was the mention, in passing, about HCQ and discrediting it. So, I left a comment on the article and here it is: As always, some of the comments are more perceptive than the original piece itself. Much of the criticism of Mr. Bolsonaro has been centred on his handling of the covid and his recommendation of the treatment of ..read more

One of my friends said, in the course of the month of March, that emerging economies have yet again proven that they are nothing high-beta (high octane) versions of developed country assets. In that sense, one could easily mimic an emerging market asset by leveraging up on developed country assets. That is from an investor perspective – an investor from a developed country. They do not offer any real diversification to an investor. What about emerging markets themselves? Why have they just ended up being a turbo-charged versions of developed country assets – on the up and on the downside? My g ..read more

Kristalina Georgieva, Managing Director of the International Monetary Fund, has written an article for FT on providing sound policy advice to emerging economies. It is conceptual in nature. Nothing wrong with the piece. To the extent it signals intellectual openness on the part of the Fund, it is welcome.  The elephant in the room is the monetary policy pursued by the developed world. That has become a big and sizeable fetter on the policy options available to developing countries, with their spillover effects. IMF is unable to do much about them, if at all. For the countries pursuing suc ..read more

Just happened to come across this news-story in Bloomberg. According to stockbrokers and investment banks, emerging markets will have better times in 2019 than in 2018. Simple rule of thumb is that if forecast did not materialise, simply forward it to the following year! Correction in American stocks has just begun. There will always be whiplash rallies as happened on Monday. Corporate credit and leveraged loans markets are dangerously unstable. The risks in these markets are yet to play out. Political risk in emerging economies is not to be discounted. Almost all the major developing economie ..read more

She makes some interesting points: There’s a whole range of sub-Saharan African and Middle Eastern countries that have become indebted to China. It’s a very opaque area. Countries like Angola, if you factor in Chinese loans, their external debt is 20 percent higher than what official data suggest. The point above is that as everyone scrambles to get hold of dollars to repay (creditors too – including sovereigns like China – will demand repayment, banks will refuse rollover or do so only on stiffer terms and thus aggravate the dollar shortage. “There used to be this larger barrier between in ..read more

(1) Shock rise in China’s shadow banking enrages Xi Jinping. Quite why it should be shocking is unclear to this blogger. The interesting tidbit in the story is this: … the shadow banking nexus is bigger than all other regular activities of the lenders put together. Regulators had thought it was equivalent to 42% of on-balance sheet business at the end of 2015. They have revised this drastically, admitting that it reached 110% by the end of last year. (2)  Have the Economic Constraints on China’s Geostrategic Ambitions diminished? That is an interesting question to ask. But, as ..read more

I just finished teaching a course titled, ‘Advanced Quantitative and Economic Analysis’ for students of the Master of Science Programme in Applied Finance at the Singapore Management University, on Friday. I had talked to them in the last two sessions about how long periods of stability breed instability through the risk-taking channel. This is the hypothesis of Hyman Minsky. I was pleasantly surprised to find a paper published by the Federal Reserve Board in October 2016 on this topic. The paper is: Danielsson, Jon, Marcela Valenzuela, and Ilknur Zer (2016). “Learning from History: Volatility ..read more

Doug Noland writes in his weekly credit bubble bulletin as follows: Let’s return to election late-night. I doubt traders and the more sophisticated market operators will easily forget what almost transpired. It’s worth noting that while S&P500 futures and the Mexican peso were collapsing, the Japanese yen was in melt-up. In just over two hours, the dollar/yen moved from 105.47 to 101.22 – an almost 4% move. Meanwhile, EM and higher-yielding currencies were under intense selling pressure – the Brazilian real, South African rand, Turkish lira, Colombian peso, Australian dollar and New Zeala ..read more

It was a month that marked the end of the quarter and hence, there was the inevitable end-of-quarter surge marked by rumours surrounding an eventual settlement between Deutsche Bank and the US Department of Justice. It was the month that the Federal Reserve threatened to act but eventually and unsurprisingly, didn’t. That allowed the S&P 500 to finish the month on a slightly positive note on a total return basis. The index was up 0.02%. That was a flat performance. Eurozone stocks were slightly better. They were up 0.67% during the month, in US dollar terms. Emerging market stocks turned i ..read more

Brazil police wire-tapped a conversation between the current President and the former President! Wow! Russia’s surprise announcement on troop withdrawal from Syria. Martin Wolf quotes a non-Congress, non-BJP MP to suggest that the BJP government is above average. True. It could be exceptionally above average if bureaucrats do not run rings around their politician-bosses. Here is an example. The Cabotage liberalisation is not all that is cracked up to be. China’s Premier says that it is impossible that China would fail to achieve 6.5% growth this year. You too can now forecast China GDP growth ..read more